Calendar No. 227

106TH CONGRESS

1ST SESSION S. 1429

[Report No. 106–120]

A BILL

To provide for reconciliation pursuant to section

for fiscal year 2000.104 of the concurrent resolution on the budget

JULY 26 (legislative day, July 26), 1999

Read twice and placed on the calendar
II

Calendar No. 227

106TH CONGRESS

1ST SESSION S. 1429

[Report No. 106–120]

To provide for reconciliation pursuant to section 104 of the concurrent

resolution on the budget for fiscal year 2000.

IN THE SENATE OF THE UNITED STATES

JULY 26 (legislative day, July 26), 1999

Mr. ROTH, from the Committee on Finance, reported the following original

bill; which was read twice and placed on the calendar

A BILL

To provide for reconciliation pursuant to section 104 of

the concurrent resolution on the budget for fiscal year 2000.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; ETC.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Taxpayer Refund Act of 1999’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment
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1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986.

4 (c) SECTION 15 NOT TO APPLY.—No amendment

5 made by this Act shall be treated as a change in a rate

6 of tax for purposes of section 15 of the Internal Revenue

7 Code of 1986.

8 (d) TABLE OF CONTENTS.—The table of contents for

9 this Act is as follows:

TITLE I—BROAD BASED TAX RELIEF

Sec. 101. Reduction of 15 percent individual income tax rate.

Sec. 102. Increase in maximum taxable income for 14 percent rate bracket.

TITLE II—FAMILY TAX RELIEF PROVISIONS

Sec. 201. Combined return to which unmarried rates apply.

Sec. 202. Marriage penalty relief for earned income credit.

Sec. 203. Exclusion for foster care payments to apply to payments by qualified

placement agencies.

Sec. 204. Modification of dependent care credit.

Sec. 205. Allowance of credit for employer expenses for child care assistance.

Sec. 206. Modification of alternative minimum tax for individuals.

TITLE III—RETIREMENT SAVINGS TAX RELIEF

Subtitle A—Individual Retirement Arrangements

Sec. 301. Modification of deduction limits for IRA contributions.

Sec. 302. Modification of income limits on contributions and rollovers to Roth

IRAs.

Sec. 303. Tax credit for matching contributions to Individual Development Accounts.

Sec. 304. Certain coins not treated as collectibles.

Subtitle B—Expanding Coverage

Sec. 311. Option to treat elective deferrals as after-tax contributions.

Sec. 312. Increase in elective contribution limits.

Sec. 313. Plan loans for subchapter S owners, partners, and sole proprietors.

Sec. 314. Elective deferrals not taken into account for purposes of deduction

limits.

Sec. 315. Reduced PBGC premium for new plans of small employers.

Sec. 316. Reduction of additional PBGC premium for new plans.

Sec. 317. Elimination of user fee for requests to IRS regarding new pension

plans.
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Sec. 318. SAFE annuities and trusts.

Sec. 319. Modification of top-heavy rules.

Subtitle C—Enhancing Fairness for Women

Sec. 321. Catchup contributions for individuals age 50 or over.

Sec. 322. Equitable treatment for contributions of employees to defined contribution plans.

Sec. 323. Clarification of tax treatment of division of section 457 plan benefits

upon divorce.

Sec. 324. Modification of safe harbor relief for hardship withdrawals from cash

or deferred arrangements.

Sec. 325. Faster vesting of certain employer matching contributions.

Subtitle D—Increasing Portability for Participants

Sec. 331. Rollovers allowed among various types of plans.

Sec. 332. Rollovers of IRAs into workplace retirement plans.

Sec. 333. Rollovers of after-tax contributions.

Sec. 334. Hardship exception to 60-day rule.

Sec. 335. Treatment of forms of distribution.

Sec. 336. Rationalization of restrictions on distributions.

Sec. 337. Purchase of service credit in governmental defined benefit plans.

Sec. 338. Employers may disregard rollovers for purposes of cash-out amounts.

Sec. 339. Inclusion requirements for section 457 plans.

Subtitle E—Strengthening Pension Security and Enforcement

Sec. 341. Repeal of 150 percent of current liability funding limit.

Sec. 342. Extension of missing participants program to multiemployer plans.

Sec. 343. Excise tax relief for sound pension funding.

Sec. 344. Failure to provide notice by defined benefit plans significantly reducing future benefit accruals.

Sec. 345. Protection of investment of employee contributions to 401(k) plans.

Sec. 346. Treatment of multiemployer plans under section 415.

Subtitle F—Encouraging Retirement Education

Sec. 351. Periodic pension benefits statements.

Sec. 352. Clarification of treatment of employer-provided retirement advice.

Subtitle G—Reducing Regulatory Burdens

Sec. 361. Flexibility in nondiscrimination and coverage rules.

Sec. 362. Modification of timing of plan valuations.

Sec. 363. Substantial owner benefits in terminated plans.

Sec. 364. ESOP dividends may be reinvested without loss of dividend deduction.

Sec. 365. Notice and consent period regarding distributions.

Sec. 366. Repeal of transition rule relating to certain highly compensated employees.

Sec. 367. Employees of tax-exempt entities.

Sec. 368. Extension to international organizations of moratorium on application

of certain nondiscrimination rules applicable to State and local

plans.

Sec. 369. Annual report dissemination.

Sec. 370. Modification of exclusion for employer provided transit passes.
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Subtitle H—Plan Amendments

Sec. 371. Provisions relating to plan amendments.

TITLE IV—EDUCATION TAX RELIEF PROVISIONS

Sec. 401. Elimination of 60-month limit and increase in income limitation on

student loan interest deduction.

Sec. 402. Modifications to qualified tuition programs.

Sec. 403. Exclusion of certain amounts received under the National Health

Service Corps Scholarship Program and the F. Edward Hebert

Armed Forces Health Professions Scholarship and Financial

Assistance Program.

Sec. 404. Permanent extension of exclusion for employer-provided educational

assistance.

Sec. 405. Additional increase in arbitrage rebate exception for governmental

bonds used to finance educational facilities.

Sec. 406. Treatment of qualified public educational facility bonds as exempt facility bonds.

Sec. 407. Federal guarantee of school construction bonds by Federal Home

Loan Banks.

TITLE V—HEALTH CARE TAX RELIEF PROVISIONS

Sec. 501. Deduction for health and long-term care insurance costs of individuals not participating in employer-subsidized health plans.

Sec. 502. Long-term care insurance permitted to be offered under cafeteria

plans and flexible spending arrangements.

Sec. 503. Additional personal exemption for taxpayer caring for elderly family

member in taxpayer’s home.

Sec. 504. Inclusion of certain vaccines against streptococcus pneumoniae to list

of taxable vaccines; reduction in per dose tax rate.

TITLE VI—SMALL BUSINESS TAX RELIEF PROVISIONS

Sec. 601. Deduction for 100 percent of health insurance costs of self-employed

individuals.

Sec. 602. Increase in expense treatment for small businesses.

Sec. 603. Repeal of Federal unemployment surtax.

Sec. 604. Income averaging for farmers not to increase alternative minimum

tax liability.

Sec. 605. Farm and Ranch Risk Management Accounts.

TITLE VII—ESTATE AND GIFT TAX RELIEF PROVISIONS

Subtitle A—Reductions of Estate, Gift, and Generation-Skipping Transfer

Taxes

Sec. 701. Reductions of estate, gift, and generation-skipping transfer taxes.

Sec. 702. Unified credit against estate and gift taxes replaced with unified exemption amount.

Subtitle B—Conservation Easements

Sec. 711. Expansion of estate tax rule for conservation easements.

Subtitle C—Annual Gift Exclusion
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Sec. 721. Increase in annual gift exclusion.

Subtitle D—Simplification of Generation-Skipping Transfer Tax

Sec. 731. Retroactive allocation of GST exemption.

Sec. 732. Severing of trusts.

Sec. 733. Modification of certain valuation rules.

Sec. 734. Relief provisions.

TITLE VIII—TAX EXEMPT ORGANIZATIONS PROVISIONS

Sec. 801. Exemption from income tax for State-created organizations providing

property and casualty insurance for property for which such

coverage is otherwise unavailable.

Sec. 802. Modifications to section 512(b)(13).

Sec. 803. Simplification of lobbying expenditure limitation.

Sec. 804. Tax-free distributions from individual retirement accounts for charitable purposes.

Sec. 805. Mileage reimbursements to charitable volunteers excluded from gross

income.

Sec. 806. Charitable contribution deduction for certain expenses incurred in

support of Native Alaskan subsistence whaling.

Sec. 807. Charitable contributions to certain low income schools may be made

in next taxable year.

Sec. 808. Deduction for portion of charitable contributions to be allowed to individuals who do not itemize deductions.

Sec. 809. Increase in limit on charitable contributions as percentage of AGI.

Sec. 810. Limited exception to excess business holdings rule.

TITLE IX—INTERNATIONAL TAX RELIEF

Sec. 901. Interest allocation rules.

Sec. 902. Look-thru rules to apply to dividends from noncontrolled section 902

corporations.

Sec. 903. Clarification of treatment of pipeline transportation income.

Sec. 904. Subpart F treatment of income from transmission of high voltage

electricity.

Sec. 905. Advance pricing agreements treated as confidential taxpayer information.

Sec. 906. Airline mileage awards to certain foreign persons.

Sec. 907. Repeal of foreign tax credit limitation under alternative minimum

tax.

Sec. 908. Treatment of military property of foreign sales corporations.

TITLE X—HOUSING AND REAL ESTATE TAX RELIEF PROVISIONS

Subtitle A—Low-Income Housing Credit

Sec. 1001. Modification of State ceiling on low-income housing credit.

Subtitle B—Historic Homes

Sec. 1011. Tax credit for renovating historic homes.

Subtitle C—Provisions Relating to Real Estate Investment Trusts

PART I—TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE

REIT SUBSIDIARIES
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Sec. 1021. Modifications to asset diversification test.

Sec. 1022. Treatment of income and services provided by taxable REIT subsidiaries.

Sec. 1023. Taxable REIT subsidiary.

Sec. 1024. Limitation on earnings stripping.

Sec. 1025. 100 percent tax on improperly allocated amounts.

Sec. 1026. Effective date.

PART II—HEALTH CARE REITS

Sec. 1031. Health care REITs.

PART III—CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES

Sec. 1041. Conformity with regulated investment company rules.

PART IV—CLARIFICATION OF EXCEPTION FROM IMPERMISSIBLE TENANT

SERVICE INCOME

Sec. 1051. Clarification of exception for independent operators.

PART V—MODIFICATION OF EARNINGS AND PROFITS RULES

Sec. 1061. Modification of earnings and profits rules.

PART VI—STUDY RELATING TO TAXABLE REIT SUBSIDIARIES

Sec. 1071. Study relating to taxable REIT subsidiaries.

Subtitle D—Private Activity Bond Volume Cap

Sec. 1081. Increase in volume cap on private activity bonds.

Subtitle E—Leasehold Improvements Depreciation

Sec. 1091. Recovery period for depreciation of certain leasehold improvements.

TITLE XI—MISCELLANEOUS PROVISIONS

Sec. 1101. Repeal of certain motor fuel excise taxes on fuel used by railroads

and on inland waterway transportation.

Sec. 1102. Tax treatment of Alaska Native Settlement Trusts.

Sec. 1103. Long-term unused credits allowed against minimum tax.

Sec. 1104. 5-year net operating loss carryback for losses attributable to operating mineral interests of independent oil and gas producers.

Sec. 1105. Election to expense geological and geophysical expenditures.

Sec. 1106. Election to expense delay rental payments

Sec. 1107. Modification of active business definition under section 355.

Sec. 1108. Temporary suspension of maximum amount of amortizable reforestation expenditures.

Sec. 1109. Modification of excise tax imposed on arrow components.

Sec. 1110. Increase in threshold for Joint Committee reports on refunds and

credits.

Sec. 1111. Modification of rural airport definition.

Sec. 1112. Payment of dividends on stock of cooperatives without reducing patronage dividends.

Sec. 1113. Consolidation of life insurance companies with other corporations.

Sec. 1114. Expansion of exemption from personal holding company tax for

lending or finance companies.
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Sec. 1115. Credit for modifications to inter-city buses required under the Americans With Disabilities Act of 1990.

Sec. 1116. Increased deductibility of business meal expenses for individuals

subject to Federal limitations on hours of service.

Sec. 1117. Tax-exempt financing of qualified highway infrastructure construction.

Sec. 1118. Expansion of DC homebuyer tax credit.

Sec. 1119. Extension of DC zero percent capital gains rate.

Sec. 1120. Natural gas gathering lines treated as 7-year property.

Sec. 1121. Exemption from ticket taxes for certain transportation provided by

small seaplanes.

TITLE XII—EXTENSION OF EXPIRED AND EXPIRING PROVISIONS

Sec. 1201. Permanent extension and modification of research credit.

Sec. 1202. Subpart F exemption for active financing income.

Sec. 1203. Taxable income limit on percentage depletion for marginal production.

Sec. 1204. Work opportunity credit and welfare-to-work credit.

Sec. 1205. Extension and modification of credit for producing electricity from

certain renewable resources.

Sec. 1206. Alaska exemption from dyeing requirements.

Sec. 1207. Extension of expensing of environmental remediation costs.

TITLE XIII—REVENUE OFFSETS

Subtitle A—General Provisions

Sec. 1301. Modification to foreign tax credit carryback and carryover

Sec. 1302. Returns relating to cancellations of indebtedness by organizations

lending money.

Sec. 1303. Increase in elective withholding rate for nonperiodic distributions

from deferred compensation plans.

Sec. 1304. Extension of Internal Revenue Service user fees.

Sec. 1305. Transfer of excess defined benefit plan assets for retiree health benefits.

Sec. 1306. Tax treatment of income and loss on derivatives.

Subtitle B—Loophole Closers

Sec. 1311. Limitation on use of non-accrual experience method of accounting.

Sec. 1312. Limitations on welfare benefit funds of 10 or more employer plans.

Sec. 1313. Modification of installment method and repeal of installment method

for accrual method taxpayers.

Sec. 1314. Treatment of gain from constructive ownership transactions.

Sec. 1315. Charitable split-dollar life insurance, annuity, and endowment contracts.

Sec. 1316. Restriction on use of real estate investment trusts to avoid estimated tax payment requirements.

Sec. 1317. Prohibited allocations of S corporation stock held by an ESOP.

Sec. 1318. Modification of anti-abuse rules related to assumption of liability.

Sec. 1319. Allocation of basis on transfers of intangibles in certain nonrecognition transactions.

Sec. 1320. Controlled entities ineligible for REIT status.

Sec. 1321. Distributions to a corporate partner of stock in another corporation.

TITLE XIV—TECHNICAL CORRECTIONS
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Sec. 1401. Amendments related to Tax and Trade Relief Extension Act of

1998.

Sec. 1402. Amendments related to Internal Revenue Service Restructuring and

Reform Act of 1998.

Sec. 1403. Amendments related to Taxpayer Relief Act of 1997.

Sec. 1404. Other technical corrections.

Sec. 1405. Clerical changes.

TITLE XV—COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

Sec. 1501. Sunset of provisions of Act.

Sec. 1502. Restoration of provisions of Act.

1 TITLE I—BROAD BASED TAX

2 RELIEF

3 SEC. 101. REDUCTION OF 15 PERCENT INDIVIDUAL INCOME

4 TAX RATE.

5 (a) REDUCTION IN RATE.—Subsection (f) of section

6 1 is amended by adding at the end the following new para7 graph:

8 ‘‘(8) RATE REDUCTION.—In prescribing the ta9 bles under paragraph (1) which apply with respect

10 to taxable years beginning in a calendar year after

11 2000, the rate applicable to the lowest income brack12 et shall be 14 percent.’’

13 (b) CONFORMING AMENDMENTS.—

14 (1) Subparagraph (B) of section 1(f)(2) is

15 amended by inserting ‘‘, except as provided in para16 graph (8),’’ before ‘‘by not changing’’.

17 (2) Subparagraph (C) of section 1(f)(2) is

18 amended by inserting ‘‘and the reduction under

19 paragraph (8) in the rate of tax’’ before the period.
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1 (3) The heading for subsection (f) of section 1

2 is amended by inserting ‘‘RATE REDUCTION;’’ before

3 ‘‘ADJUSTMENTS’’.

4 (4) Section 1(g)(7)(B)(ii)(II) is amended by

5 striking ‘‘15 percent’’ and inserting ‘‘14 percent’’.

6 (5) Section 3402(p)(1)(B) is amended by strik7 ing ‘‘15’’ and inserting ‘‘14’’.

8 (6) Section 3402(p)(2) is amended by striking

9 ‘‘15 percent’’ and inserting ‘‘14 percent’’.

10 (c) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to taxable years beginning after

12 December 31, 2000.

13 SEC. 102. INCREASE IN MAXIMUM TAXABLE INCOME FOR 14

14 PERCENT RATE BRACKET.

15 (a) IN GENERAL.—Section 1(f) (relating to adjust16 ments in tax tables so that inflation will not result in tax

17 increases), as amended by section 101, is amended—

18 (1) in paragraph (2)—

19 (A) by redesignating subparagraphs (B)

20 and (C) as subparagraphs (C) and (D),

21 (B) by inserting after subparagraph (A)

22 the following:

23 ‘‘(B) in the case of the tables contained in

24 subsections (a), (b), (c), and (d), by increasing

25 (after adjustment under paragraph (8)) the
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1 maximum taxable income level for the 14 per2 cent rate bracket and the minimum taxable in3 come level for the 28 percent rate bracket oth4 erwise determined under subparagraph (A) for

5 taxable years beginning in any calendar year

6 after 2004 by the applicable dollar amount for

7 such calendar year,’’, and

8 (C) by striking ‘‘subparagraph (A)’’ in

9 subparagraph (C) (as so redesignated) and in10 serting ‘‘subparagraphs (A) and (B)’’, and

11 (2) by adding at the end the following:

12 ‘‘(9) APPLICABLE DOLLAR AMOUNT.—For pur13 poses of paragraph (2)(B)—

14 ‘‘(A) IN GENERAL.—The applicable dollar

15 amount for any calendar year shall be deter16 mined as follows:

17 ‘‘(i) JOINT RETURNS AND SURVIVING

18 SPOUSES.—In the case of the table con19 tained in subsection (a)—

Applicable

‘‘Calendar year: dollar amount:

2005 or 2006 ........................................................................... $4,000

2007 and thereafter ................................................................. $5,000.

20 ‘‘(ii) OTHER TABLES.—In the case of

21 the table contained in subsection (b), (c),

22 or (d)—
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Applicable

‘‘Calendar year: dollar amount:

2005 or 2006 ........................................................................... $2,000

2007 and thereafter ................................................................. $2,500.

1 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—In

2 the case of any taxable year beginning in any

3 calendar year after 2007, the applicable dollar

4 amount shall be increased by an amount equal

5 to—

6 ‘‘(i) such dollar amount, multiplied by

7 ‘‘(ii) the cost-of living adjustment de8 termined under paragraph (3) for the cal9 endar year in which the taxable year be10 gins, determined by substituting ‘calendar

11 year 2006’ for ‘calendar year 1992’ in sub12 paragraph (B) thereof.’’

13 (b) ROUNDING.—Section 1(f)(6)(A) is amended by

14 inserting ‘‘(after being increased under paragraph

15 (2)(B))’’ after ‘‘paragraph (2)(A)’’.

16 TITLE II—FAMILY TAX RELIEF

17 PROVISIONS

18 SEC. 201. COMBINED RETURN TO WHICH UNMARRIED

19 RATES APPLY.

20 (a) IN GENERAL.—Subpart B of part II of sub21 chapter A of chapter 61 (relating to income tax returns)

22 is amended by inserting after section 6013 the following

23 new section:
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1 ‘‘SEC. 6013A. COMBINED RETURN WITH SEPARATE RATES.

2 ‘‘(a) GENERAL RULE.—A husband and wife may

3 make a combined return of income taxes under subtitle

4 A under which—

5 ‘‘(1) a separate taxable income is determined

6 for each spouse by applying the rules provided in

7 this section, and

8 ‘‘(2) the tax imposed by section 1 is the aggre9 gate amount resulting from applying the separate

10 rates set forth in section 1(c) to each such taxable

11 income.

12 ‘‘(b) TREATMENT OF INCOME.—For purposes of this

13 section—

14 ‘‘(1) earned income (within the meaning of sec15 tion 911(d)), and any income received as a pension

16 or annuity which arises from an employer-employee

17 relationship, shall be treated as the income of the

18 spouse who rendered the services, and

19 ‘‘(2) income from property shall be divided be20 tween the spouses in accordance with their respec21 tive ownership rights in such property (equally in

22 the case of property held jointly by the spouses).

23 ‘‘(c) TREATMENT OF DEDUCTIONS.—For purposes of

24 this section—

25 ‘‘(1) except as otherwise provided in this sub26 section, the deductions described in section 62(a)
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1 shall be allowed to the spouse treated as having the

2 income to which such deductions relate,

3 ‘‘(2) the deduction for retirement savings de4 scribed in paragraph (7) of section 62(a) shall be al5 lowed to the spouse whose earned income qualified

6 the savings for the deduction,

7 ‘‘(3) the deduction for alimony described in

8 paragraph (10) of section 62(a) shall be allowed to

9 the spouse who has the liability to pay the alimony,

10 ‘‘(4) the deduction described in paragraph (16)

11 of section 62(a) (relating to contributions to medical

12 savings accounts) shall be allowed to the spouse with

13 respect to whose employment or self-employment

14 such account relates,

15 ‘‘(5) the deductions allowable by section 151(b)

16 (relating to personal exemptions for taxpayer and

17 spouse) shall be determined by allocating 1 personal

18 exemption to each spouse,

19 ‘‘(6) section 63 shall be applied as if such

20 spouses were not married, except that the election

21 whether or not to itemize deductions shall be made

22 jointly by both spouses and apply to each, and

23 ‘‘(7) each spouse’s share of all other deductions

24 shall be determined by multiplying the aggregate

25 amount thereof by the fraction—
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1 ‘‘(A) the numerator of which is such

2 spouse’s adjusted gross income, and

3 ‘‘(B) the denominator of which is the com4 bined adjusted gross incomes of the 2 spouses.

5 Any fraction determined under paragraph (7) shall be

6 rounded to the nearest percentage point.

7 ‘‘(d) TREATMENT OF CREDITS.—Credits shall be de8 termined (and applied against the joint liability of the cou9 ple for tax determined under this section) as if the spouses

10 had filed a joint return.

11 ‘‘(e) TREATMENT AS JOINT RETURN.—Except as

12 otherwise provided in this section or in the regulations

13 prescribed hereunder, for purposes of this title (other than

14 sections 1 and 63(c)) a combined return under this section

15 shall be treated as a joint return.

16 ‘‘(f) REGULATIONS.—The Secretary shall prescribe

17 such regulations as may be necessary or appropriate to

18 carry out this section.’’.

19 (b) UNMARRIED RATE MADE APPLICABLE.—So

20 much of subsection (c) of section 1 as precedes the table

21 is amended to read as follows:

22 ‘‘(c) SEPARATE OR UNMARRIED RETURN RATE.—

23 There is hereby imposed on the taxable income of every

24 individual (other than a married individual (as defined in

25 section 7703) filing a return which is not a combined re-
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1 turn under section 6013A, a surviving spouse as defined

2 in section 2(a), or a head of household as defined in sec3 tion 2(b)) a tax determined in accordance with the fol4 lowing table:’’.

5 (c) BASIC STANDARD DEDUCTION FOR UNMARRIED

6 INDIVIDUALS MADE APPLICABLE.—Subparagraph (C) of

7 section 63(c)(2) is amended to read as follows:

8 ‘‘(C) $3,000 in the case of an individual

9 other than—

10 ‘‘(i) a married individual filing a re11 turn which is not a combined return under

12 section 6013A,

13 ‘‘(ii) a surviving spouse, or

14 ‘‘(iii) a head of household, or’’.

15 (d) CLERICAL AMENDMENT.—The table of sections

16 for subpart B of part II of subchapter A of chapter 61

17 is amended by inserting after the item relating to section

18 6013 the following:

‘‘Sec. 6013A. Combined return with separate rates.’’

19 (e) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to taxable years beginning after

21 December 31, 2004.

22 SEC. 202. MARRIAGE PENALTY RELIEF FOR EARNED IN23 COME CREDIT.

24 (a) IN GENERAL.—Paragraph (2) of section 32(b)

25 (relating to percentages and amounts) is amended—
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1 (1) by striking ‘‘AMOUNTS.—The earned’’ and

2 inserting ‘‘AMOUNTS.—

3 ‘‘(A) IN GENERAL.—Subject to subpara4 graph (B), the earned’’, and

5 (2) by adding at the end the following new sub6 paragraph:

7 ‘‘(B) JOINT RETURNS.—In the case of a

8 joint return, the phaseout amount determined

9 under subparagraph (A) shall be increased by

10 $2,000.’’

11 (b) INFLATION ADJUSTMENT.—Paragraph (1)(B) of

12 section 32(j) (relating to inflation adjustments) is amend13 ed to read as follows:

14 ‘‘(B) the cost-of-living adjustment deter15 mined under section 1(f)(3) for the calendar

16 year in which the taxable year begins,

17 determined—

18 ‘‘(i) in the case of amounts in sub19 sections (b)(1)(A) and (i)(1), by sub20 stituting ‘calendar year 1995’ for ‘calendar

21 year 1992’ in subparagraph (B) thereof,

22 and

23 ‘‘(ii) in the case of the $2,000 amount

24 in subsection (b)(1)(B), by substituting

25 ‘calendar year 2004’ for ‘calendar year
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1 1992’ in subparagraph (B) of such section

2 1.’’

3 (c) ROUNDING.—Section 32(j)(2)(A) (relating to

4 rounding) is amended by striking ‘‘subsection (b)(2)’’ and

5 inserting ‘‘subsection (b)(2)(A) (after being increased

6 under subparagraph (B) thereof)’’.

7 (d) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years beginning after

9 December 31, 2004.

10 SEC. 203. EXCLUSION FOR FOSTER CARE PAYMENTS TO

11 APPLY TO PAYMENTS BY QUALIFIED PLACE12 MENT AGENCIES.

13 (a) IN GENERAL.—The matter preceding subpara14 graph (B) of section 131(b)(1) (defining qualified foster

15 care payment) is amended to read as follows:

16 ‘‘(1) IN GENERAL.—The term ‘qualified foster

17 care payment’ means any payment made pursuant to

18 a foster care program of a State or political subdivi19 sion thereof—

20 ‘‘(A) which is paid by—

21 ‘‘(i) the State or political subdivision

22 thereof, or

23 ‘‘(ii) a qualified foster care placement

24 agency of such State or political subdivi25 sion, and’’.
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1 (b) QUALIFIED FOSTER INDIVIDUALS TO INCLUDE

2 INDIVIDUALS PLACED BY QUALIFIED PLACEMENT AGEN3 CIES.—Subparagraph (B) of section 131(b)(2) (defining

4 qualified foster individual) is amended to read as follows:

5 ‘‘(B) a qualified foster care placement

6 agency.’’

7 (c) QUALIFIED FOSTER CARE PLACEMENT AGENCY

8 DEFINED.—Subsection (b) of section 131 is amended by

9 redesignating paragraph (3) as paragraph (4) and by in10 serting after paragraph (2) the following new paragraph:

11 ‘‘(3) QUALIFIED FOSTER CARE PLACEMENT

12 AGENCY.—The term ‘qualified foster care placement

13 agency’ means any placement agency which is li14 censed or certified by—

15 ‘‘(A) a State or political subdivision there16 of, or

17 ‘‘(B) an entity designated by a State or

18 political subdivision thereof,

19 to make foster care payments under the foster care

20 program of such State or political subdivision to pro21 viders of foster care.’’

22 (d) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to taxable years beginning after

24 December 31, 1999.
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1 SEC. 204. MODIFICATION OF DEPENDENT CARE CREDIT.

2 (a) INCREASE IN PERCENTAGE OF EMPLOYMENT3 RELATED EXPENSES TAKEN INTO ACCOUNT.—Sub4 section (a)(2) of section 21 (relating to expenses for

5 household and dependent care services necessary for gain6 ful employment) is amended—

7 (1) by striking ‘‘30 percent’’ and inserting ‘‘50

8 percent’’,

9 (2) by striking ‘‘$2,000’’ and inserting

10 ‘‘$1,000’’, and

11 (3) by striking ‘‘$10,000’’ and inserting

12 ‘‘$30,000’’.

13 (b) INDEXING OF LIMIT ON EMPLOYMENT-RELATED

14 EXPENSES.—Section 21(c) (relating to dollar limit on

15 amount creditable) is amended to read as follows:

16 ‘‘(c) DOLLAR LIMIT ON AMOUNT CREDITABLE.—

17 ‘‘(1) IN GENERAL.—The amount of the employ18 ment-related expenses incurred during any taxable

19 year which may be taken into account under sub20 section (a) shall not exceed—

21 ‘‘(A) an amount equal to 50 percent of the

22 amount determined under subparagraph (B) if

23 there is 1 qualifying individual with respect to

24 the taxpayer for such taxable year, or
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1 ‘‘(B) $4,800 if there are 2 or more quali2 fying individuals with respect to the taxpayer

3 for such taxable year.

4 The amount determined under subparagraph (A) or

5 (B) (whichever is applicable) shall be reduced by the

6 aggregate amount excludable from gross income

7 under section 129 for the taxable year.

8 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—

9 ‘‘(A) IN GENERAL.—In the case of a tax10 able year beginning after 2000, the $4,800

11 amount under paragraph (1)(B) shall be in12 creased by an amount equal to—

13 ‘‘(i) such dollar amount, multiplied by

14 ‘‘(ii) the cost-of-living adjustment de15 termined under section 1(f)(3) for the cal16 endar year in which the taxable year be17 gins, determined by substituting ‘calendar

18 year 1999’ for ‘calendar year 1992’ in sub19 paragraph (B) thereof.

20 ‘‘(B) ROUNDING RULES.—If any amount

21 after adjustment under subparagraph (A) is not

22 a multiple of $50, such amount shall be round23 ed to the next lower multiple of $50.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 2000.

4 SEC. 205. ALLOWANCE OF CREDIT FOR EMPLOYER EX5 PENSES FOR CHILD CARE ASSISTANCE.

6 (a) IN GENERAL.—Subpart D of part IV of sub7 chapter A of chapter 1 (relating to business related cred8 its) is amended by adding at the end the following new

9 section:

10 ‘‘SEC. 45D. EMPLOYER-PROVIDED CHILD CARE CREDIT.

11 ‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec12 tion 38, the employer-provided child care credit deter13 mined under this section for the taxable year is an amount

14 equal to the sum of—

15 ‘‘(1) 25 percent of the qualified child care ex16 penditures, and

17 ‘‘(2) 10 percent of the qualified child care re18 source and referral expenditures,

19 of the taxpayer for such taxable year.

20 ‘‘(b) DOLLAR LIMITATION.—The credit allowable

21 under subsection (a) for any taxable year shall not exceed

22 $150,000.

23 ‘‘(c) DEFINITIONS.—For purposes of this section—

24 ‘‘(1) QUALIFIED CHILD CARE EXPENDITURE.—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 child care expenditure’ means any amount paid

3 or incurred—

4 ‘‘(i) to acquire, construct, rehabilitate,

5 or expand property—

6 ‘‘(I) which is to be used as part

7 of an eligible qualified child care facil8 ity of the taxpayer,

9 ‘‘(II) with respect to which a de10 duction for depreciation (or amortiza11 tion in lieu of depreciation) is allow12 able, and

13 ‘‘(III) which does not constitute

14 part of the principal residence (within

15 the meaning of section 121) of the

16 taxpayer or any employee of the tax17 payer,

18 ‘‘(ii) for the operating costs of an eli19 gible qualified child care facility of the tax20 payer, including costs related to the train21 ing of employees of the child care facility,

22 to scholarship programs, to the providing

23 of differential compensation to employees

24 based on level of child care training, and to
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1 expenses associated with achieving accredi2 tation, or

3 ‘‘(iii) under a contract with a qualified

4 child care facility to provide child care

5 services to employees of the taxpayer.

6 ‘‘(B) EXCLUSION FOR AMOUNTS FUNDED

7 BY GRANTS, ETC.—The term ‘qualified child

8 care expenditure’ shall not include any amount

9 to the extent such amount is funded by any

10 grant, contract, or otherwise by another person

11 (or any governmental entity).

12 ‘‘(C) NONDISCRIMINATION.—The term

13 ‘qualified child care expenditure’ shall not in14 clude any amount expended in relation to any

15 child care services unless the providing of such

16 services to employees of the taxpayer does not

17 discriminate in favor of highly compensated em18 ployees (within the meaning of section 404(q)).

19 ‘‘(2) QUALIFIED CHILD CARE FACILITY.—

20 ‘‘(A) IN GENERAL.—The term ‘qualified

21 child care facility’ means a facility—

22 ‘‘(i) the principal use of which is to

23 provide child care assistance, and

24 ‘‘(ii) which meets the requirements of

25 all applicable laws and regulations of the
24

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1 State or local government in which it is lo2 cated, including, but not limited to, the li3 censing of the facility as a child care facil4 ity.

5 Clause (i) shall not apply to a facility which is

6 the principal residence (within the meaning of

7 section 121) of the operator of the facility.

8 ‘‘(B) ELIGIBLE QUALIFIED CHILD CARE

9 FACILITY.—A qualified child care facility shall

10 be treated as an eligible qualified child care fa11 cility with respect to the taxpayer if—

12 ‘‘(i) enrollment in the facility is open

13 to employees of the taxpayer during the

14 taxable year,

15 ‘‘(ii) the facility is not the principal

16 trade or business of the taxpayer, and

17 ‘‘(iii) at least 30 percent of the enroll18 ees of such facility are dependents of em19 ployees of the taxpayer.

20 ‘‘(C) APPLICATION OF SUBPARAGRAPH

21 (B).—In the case of a new facility, the facility

22 shall be treated as meeting the requirement of

23 subparagraph (B)(iii) if not later than 2 years

24 after placing such facility in service at least 30
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1 percent of the enrollees of such facility are de2 pendents of employees of the taxpayer.

3 ‘‘(3) QUALIFIED CHILD CARE RESOURCE AND

4 REFERRAL EXPENDITURE.—

5 ‘‘(A) IN GENERAL.—The term ‘qualified

6 child care resource and referral expenditure’

7 means any amount paid or incurred under a

8 contract to provide child care resource and re9 ferral services to employees of the taxpayer.

10 ‘‘(B) EXCLUSION FOR AMOUNTS FUNDED

11 BY GRANTS, ETC.—The term ‘qualified child

12 care resource and referral expenditure’ shall not

13 include any amount to the extent such amount

14 is funded by any grant, contract, or otherwise

15 by another person (or any governmental entity).

16 ‘‘(C) NONDISCRIMINATION.—The term

17 ‘qualified child care resource and referral ex18 penditure’ shall not include any amount ex19 pended in relation to any child care resource

20 and referral services unless the providing of

21 such services to employees of the taxpayer does

22 not discriminate in favor of highly compensated

23 employees (within the meaning of section

24 404(q)).
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1 ‘‘(d) RECAPTURE OF ACQUISITION AND CONSTRUC2 TION CREDIT.—

3 ‘‘(1) IN GENERAL.—If, as of the close of any

4 taxable year, there is a recapture event with respect

5 to any eligible qualified child care facility of the tax6 payer, then the tax of the taxpayer under this chap7 ter for such taxable year shall be increased by an

8 amount equal to the product of—

9 ‘‘(A) the applicable recapture percentage,

10 and

11 ‘‘(B) the aggregate decrease in the credits

12 allowed under section 38 for all prior taxable

13 years which would have resulted if the qualified

14 child care expenditures of the taxpayer de15 scribed in subsection (c)(1)(A) with respect to

16 such facility had been zero.

17 ‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—

18 ‘‘(A) IN GENERAL.—For purposes of this

19 subsection, the applicable recapture percentage

20 shall be determined from the following table:

The applicable

recapture

‘‘If the recapture event occurs in: percentage is:

Year 1 ........................................................................ 100

Year 2 ........................................................................ 80

Year 3 ........................................................................ 60

Year 4 ........................................................................ 40

Year 5 ........................................................................ 20

Years 6 and thereafter .............................................. 0.
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1 ‘‘(B) YEARS.—For purposes of subpara2 graph (A), year 1 shall begin on the first day

3 of the taxable year in which the eligible quali4 fied child care facility is placed in service by the

5 taxpayer.

6 ‘‘(3) RECAPTURE EVENT DEFINED.—For pur7 poses of this subsection, the term ‘recapture event’

8 means—

9 ‘‘(A) CESSATION OF OPERATION.—The

10 cessation of the operation of the facility as an

11 eligible qualified child care facility.

12 ‘‘(B) CHANGE IN OWNERSHIP.—

13 ‘‘(i) IN GENERAL.—Except as pro14 vided in clause (ii), the disposition of a

15 taxpayer’s interest in an eligible qualified

16 child care facility with respect to which the

17 credit described in subsection (a) was al18 lowable.

19 ‘‘(ii) AGREEMENT TO ASSUME RECAP20 TURE LIABILITY.—Clause (i) shall not

21 apply if the person acquiring such interest

22 in the facility agrees in writing to assume

23 the recapture liability of the person dis24 posing of such interest in effect imme25 diately before such disposition. In the
28

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1 event of such an assumption, the person

2 acquiring the interest in the facility shall

3 be treated as the taxpayer for purposes of

4 assessing any recapture liability (computed

5 as if there had been no change in owner6 ship).

7 ‘‘(4) SPECIAL RULES.—

8 ‘‘(A) TAX BENEFIT RULE.—The tax for

9 the taxable year shall be increased under para10 graph (1) only with respect to credits allowed

11 by reason of this section which were used to re12 duce tax liability. In the case of credits not so

13 used to reduce tax liability, the carryforwards

14 and carrybacks under section 39 shall be appro15 priately adjusted.

16 ‘‘(B) NO CREDITS AGAINST TAX.—Any in17 crease in tax under this subsection shall not be

18 treated as a tax imposed by this chapter for

19 purposes of determining the amount of any

20 credit under subpart A, B, or D of this part.

21 ‘‘(C) NO RECAPTURE BY REASON OF CAS22 UALTY LOSS.—The increase in tax under this

23 subsection shall not apply to a cessation of op24 eration of the facility as a qualified child care

25 facility by reason of a casualty loss to the ex-
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1 tent such loss is restored by reconstruction or

2 replacement within a reasonable period estab3 lished by the Secretary.

4 ‘‘(e) SPECIAL RULES.—For purposes of this

5 section—

6 ‘‘(1) AGGREGATION RULES.—All persons which

7 are treated as a single employer under subsections

8 (a) and (b) of section 52 shall be treated as a single

9 taxpayer.

10 ‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND

11 TRUSTS.—Under regulations prescribed by the Sec12 retary, rules similar to the rules of subsection (d) of

13 section 52 shall apply.

14 ‘‘(3) ALLOCATION IN THE CASE OF PARTNER15 SHIPS.—In the case of partnerships, the credit shall

16 be allocated among partners under regulations pre17 scribed by the Secretary.

18 ‘‘(f) NO DOUBLE BENEFIT.—

19 ‘‘(1) REDUCTION IN BASIS.—For purposes of

20 this subtitle—

21 ‘‘(A) IN GENERAL.—If a credit is deter22 mined under this section with respect to any

23 property by reason of expenditures described in

24 subsection (c)(1)(A), the basis of such property
30

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1 shall be reduced by the amount of the credit so

2 determined.

3 ‘‘(B) CERTAIN DISPOSITIONS.—If during

4 any taxable year there is a recapture amount

5 determined with respect to any property the

6 basis of which was reduced under subparagraph

7 (A), the basis of such property (immediately be8 fore the event resulting in such recapture) shall

9 be increased by an amount equal to such recap10 ture amount. For purposes of the preceding

11 sentence, the term ‘recapture amount’ means

12 any increase in tax (or adjustment in

13 carrybacks or carryovers) determined under

14 subsection (d).

15 ‘‘(2) OTHER DEDUCTIONS AND CREDITS.—No

16 deduction or credit shall be allowed under any other

17 provision of this chapter with respect to the amount

18 of the credit determined under this section.’’

19 (b) CONFORMING AMENDMENTS.—

20 (1) Section 38(b) is amended—

21 (A) by striking out ‘‘plus’’ at the end of

22 paragraph (11),

23 (B) by striking out the period at the end

24 of paragraph (12), and inserting a comma and

25 ‘‘plus’’, and
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1 (C) by adding at the end the following new

2 paragraph:

3 ‘‘(13) the employer-provided child care credit

4 determined under section 45D.’’.

5 (2) The table of sections for subpart D of part

6 IV of subchapter A of chapter 1 is amended by add7 ing at the end the following new item:

‘‘Sec. 45D. Employer-provided child care credit.’’.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to taxable years beginning after

10 December 31, 2000.

11 SEC. 206. MODIFICATION OF ALTERNATIVE MINIMUM TAX

12 FOR INDIVIDUALS.

13 (a) NONREFUNDABLE PERSONAL CREDITS FULLY

14 ALLOWED AGAINST REGULAR TAX LIABILITY.—

15 (1) IN GENERAL.—Subsection (a) of section 26

16 (relating to limitation based on amount of tax) is

17 amended to read as follows:

18 ‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The

19 aggregate amount of credits allowed by this subpart for

20 the taxable year shall not exceed the taxpayer’s regular

21 tax liability for the taxable year.’’

22 (2) CHILD CREDIT.—Subsection (d) of section

23 24 is amended by striking paragraph (2) and by re24 designating paragraph (3) as paragraph (2).
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1 (3) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to taxable years begin3 ning after December 31, 1998.

4 (b) PERSONAL EXEMPTIONS ALLOWED IN COM5 PUTING MINIMUM TAX.—

6 (1) IN GENERAL.—Subparagraph (E) of section

7 56(b)(1) is amended by striking ‘‘, the deduction for

8 personal exemptions under section 151,’’.

9 (2) CONFORMING AMENDMENT.—The heading

10 to section 56(b)(1)(E) is amended by striking ‘‘AND

11 DEDUCTION FOR PERSONAL EXEMPTIONS’’.

12 (3) EFFECTIVE DATE.—The amendments made

13 by this subsection shall apply to taxable years begin14 ning after December 31, 2004.

15 TITLE III—RETIREMENT

16 SAVINGS TAX RELIEF

17 Subtitle A—Individual Retirement

18 Arrangements

19 SEC. 301. MODIFICATION OF DEDUCTION LIMITS FOR IRA

20 CONTRIBUTIONS.

21 (a) INCREASE IN CONTRIBUTION LIMIT.—

22 (1) IN GENERAL.—Paragraph (1)(A) of section

23 219(b) (relating to maximum amount of deduction)

24 is amended by striking ‘‘$2,000’’ and inserting ‘‘the

25 deductible amount’’.
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1 (2) DEDUCTIBLE AMOUNT.—Section 219(b) is

2 amended by adding at the end the following new

3 paragraph:

4 ‘‘(5) DEDUCTIBLE AMOUNT.—For purposes of

5 paragraph (1)(A)—

6 ‘‘(A) IN GENERAL.—The deductible

7 amount shall be determined in accordance with

8 the following table:

‘‘For taxable years The deductible

beginning in: amount is:

2001 ......................................................................................... $3,000

2002 ......................................................................................... $4,000

2003 and thereafter ................................................................. $5,000.

9 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

10 ‘‘(i) IN GENERAL.—In the case of any

11 taxable year beginning in a calendar year

12 after 2003, the $5,000 amount under sub13 paragraph (A) shall be increased by an

14 amount equal to—

15 ‘‘(I) such dollar amount, multi16 plied by

17 ‘‘(II) the cost-of-living adjust18 ment determined under section 1(f)(3)

19 for the calendar year in which the tax20 able year begins, determined by sub21 stituting ‘calendar year 2002’ for ‘cal22 endar year 1992’ in subparagraph (B)

23 thereof.
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1 ‘‘(ii) ROUNDING RULES.—If any

2 amount after adjustment under clause (i)

3 is not a multiple of $100, such amount

4 shall be rounded to the next lower multiple

5 of $100.’’

6 (b) INCREASE IN ADJUSTED GROSS INCOME LIMITS

7 FOR ACTIVE PARTICIPANTS.—

8 (1) IN GENERAL.—Subparagraph (B) of section

9 219(g)(3) (relating to applicable dollar amount) is

10 amended to read as follows:

11 ‘‘(B) APPLICABLE DOLLAR AMOUNT.—The

12 term ‘applicable dollar amount’ means the fol13 lowing:

14 ‘‘(i) In the case of a taxpayer filing a

15 joint return:

‘‘For taxable years The applicable

beginning in: dollar amount is:

2001 ......................................................................................... $53,000

2002 ......................................................................................... $54,000

2003 ......................................................................................... $60,000

2004 ......................................................................................... $65,000

2005 ......................................................................................... $70,000

2006 ......................................................................................... $75,000

2007 ......................................................................................... $80,000

2008 ......................................................................................... $84,000

2009 ......................................................................................... $89,000

2010 and thereafter ................................................................. $94,000.

16 ‘‘(ii) In the case of any other taxpayer

17 (other than a married individual filing a

18 separate return):

‘‘For taxable years The applicable

beginning in: dollar amount is:

2001 ......................................................................................... $33,000
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‘‘For taxable years The applicable

beginning in: dollar amount is:

2002 ......................................................................................... $34,000

2003 ......................................................................................... $40,000

2004 ......................................................................................... $45,000

2005, 2006, and 2007 ............................................................. $50,000

2008 ......................................................................................... $52,000

2009 ......................................................................................... $54,500

2010 and thereafter ................................................................. $57,000.’’

1 (2) COST-OF-LIVING ADJUSTMENT.—Section

2 219(g)(3) is amended by adding at the end the fol3 lowing new subparagraph:

4 ‘‘(C) COST-OF-LIVING ADJUSTMENT.—

5 ‘‘(i) IN GENERAL.—In the case of any

6 taxable year beginning in a calendar year

7 after 2010, the $94,000 amount in sub8 paragraph (B)(i) and the $57,000 amount

9 in subparagraph(B)(ii) shall each be in10 creased by an amount equal to—

11 ‘‘(I) such dollar amount, multi12 plied by

13 ‘‘(II) the cost-of-living adjust14 ment determined under section 1(f)(3)

15 for the calendar year in which the tax16 able year begins, determined by sub17 stituting ‘calendar year 2009’ for ‘cal18 endar year 1992’ in subparagraph (B)

19 thereof.

20 ‘‘(ii) ROUNDING RULES.—If any

21 amount after adjustment under clause (i)
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1 is not a multiple of $1,000, such amount

2 shall be reduced to the next lowest multiple

3 of $1,000.’’

4 (c) CONFORMING AMENDMENTS.—

5 (1) Section 408(a)(1) is amended by striking

6 ‘‘in excess of $2,000 on behalf of any individual’’

7 and inserting ‘‘on behalf of any individual in excess

8 of the amount in effect for such taxable year under

9 section 219(b)(1)(A)’’.

10 (2) Section 408(b)(2)(B) is amended by strik11 ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in

12 effect under section 219(b)(1)(A)’’.

13 (3) Section 408(b) is amended by striking

14 ‘‘$2,000’’ in the matter following paragraph (4) and

15 inserting ‘‘the dollar amount in effect under section

16 219(b)(1)(A)’’.

17 (4) Section 408(j) is amended by striking

18 ‘‘$2,000’’.

19 (5) Section 408(p)(8) is amended by striking

20 ‘‘$2,000’’ and inserting ‘‘the dollar amount in effect

21 under section 219(b)(1)(A)’’

22 (d) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to taxable years beginning after

24 December 31, 2000.
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1 SEC. 302. MODIFICATION OF INCOME LIMITS ON CON2 TRIBUTIONS AND ROLLOVERS TO ROTH IRAS.

3 (a) REPEAL OF AGI LIMIT ON CONTRIBUTIONS.—

4 Section 408A(c)(3) (relating to limits based on modified

5 adjusted gross income) is amended by striking subpara6 graph (A) and by redesignating subparagraphs (B), (C),

7 and (D) as subparagraphs (A), (B), and (C), respectively.

8 (b) INCREASE IN AGI LIMIT FOR ROLLOVER CON9 TRIBUTIONS.—Section 408A(c)(3)(A) (relating to rollover

10 from IRA), as redesignated by subsection (a), is amended

11 to read as follows:

12 ‘‘(A) ROLLOVER FROM IRA.—A taxpayer

13 shall not be allowed to make a qualified rollover

14 contribution from an individual retirement plan

15 other than a Roth IRA during any taxable year

16 if, for the taxable year of the distribution to

17 which the contribution relates, the taxpayer’s

18 adjusted gross income exceeds $1,000,000.’’

19 (c) CONFORMING AMENDMENTS.—

20 (1) Subparagraph (B) of section 408A(c)(3), as

21 redesignated by subsection (a) and as in effect be22 fore and after the amendments made by the Internal

23 Revenue Service Restructuring and Reform Act of

24 1998, is amended to read as follows:
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1 ‘‘(B) DEFINITION OF ADJUSTED GROSS IN2 COME.—For purposes of subparagraph (A), ad3 justed gross income shall be determined—

4 ‘‘(i) after application of sections 86

5 and 469, and

6 ‘‘(ii) without regard to sections 135,

7 137, 221, and 911, the deduction allowable

8 under section 219, or any amount included

9 in gross income under subsection (d)(3).’’

10 (2) Subparagraph (B) of section 408A(c)(3), as

11 amended by paragraph (1), is amended by inserting

12 ‘‘or by reason of a required distribution under a pro13 vision described in paragraph (5)’’ before the period

14 at the end.

15 (d) EFFECTIVE DATES.—

16 (1) IN GENERAL.—The amendments made by

17 this section shall apply to taxable years beginning

18 after December 31, 2000.

19 (2) ROLLOVERS.—The amendment made by

20 subsection (b) shall apply to taxable years beginning

21 after December 31, 2002.

22 (3) ADJUSTED GROSS INCOME.—The amend23 ment made by subsection (c)(2) shall apply to tax24 able years beginning after December 31, 2004.
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1 SEC. 303. TAX CREDIT FOR MATCHING CONTRIBUTIONS TO

2 INDIVIDUAL DEVELOPMENT ACCOUNTS.

3 (a) IN GENERAL.—Subchapter F of chapter 1 (relat4 ing to exempt organizations) is amended by adding at the

5 end the following new part:

6 ‘‘PART IX—INDIVIDUAL DEVELOPMENT

7 ACCOUNTS

‘‘Sec. 530A. Individual development accounts.

8 ‘‘SEC. 530A. INDIVIDUAL DEVELOPMENT ACCOUNTS.

9 ‘‘(a) INDIVIDUAL DEVELOPMENT ACCOUNT.—For

10 purposes of this section, the term ‘Individual Development

11 Account’ means a custodial account established for the ex12 clusive benefit of an eligible individual or such individual’s

13 beneficiaries, but only if the written governing instrument

14 creating the account meets the following requirements:

15 ‘‘(1) Except in the case of a qualified rollover

16 (as defined in subsection (c)(2)(E))—

17 ‘‘(A) no contribution will be accepted un18 less it is in cash, and

19 ‘‘(B) contributions will not be accepted for

20 the taxable year in excess of the lesser of—

21 ‘‘(i) $350, or

22 ‘‘(ii) an amount equal to the com23 pensation includible in the eligible individ24 ual’s gross income for such taxable year.
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1 ‘‘(2) The custodian of the account is a qualified

2 financial institution.

3 ‘‘(3) The interest of an eligible individual in the

4 balance of the account (determined without regard

5 to any such matching contribution or earnings there6 on) is nonforfeitable.

7 ‘‘(4) The assets of the account will not be com8 mingled with other property except in a common

9 trust fund or common investment fund.

10 ‘‘(5) Except as provided in subsection (c), any

11 amount in the account may be paid out only for

12 qualified expense distributions.

13 ‘‘(b) MATCHING CONTRIBUTIONS WITH RESPECT TO

14 INDIVIDUAL DEVELOPMENT ACCOUNTS.—

15 ‘‘(1) IN GENERAL.—If an eligible individual es16 tablishes an Individual Development Account with a

17 qualified financial institution, the qualified financial

18 institution may deposit into a separate, parallel, in19 dividual or pooled matching account an eligible

20 matching contribution for the taxable year. The

21 qualified financial institution shall maintain a sepa22 rate accounting of matching contributions and earn23 ings thereon.

24 ‘‘(2) ELIGIBLE MATCHING CONTRIBUTION.—

25 For purposes of this section, the term ‘eligible
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1 matching contribution’ means a dollar-for-dollar

2 match of the contributions made by the eligible indi3 vidual into the Individual Development Account de4 scribed in paragraph (1) with respect to any taxable

5 year.

6 ‘‘(3) ALLOWANCE OF CREDIT FOR ELIGIBLE

7 MATCHING CONTRIBUTIONS.—

8 ‘‘(A) IN GENERAL.—In the case of a quali9 fied financial institution, there shall be allowed

10 as a credit against the tax imposed by this

11 chapter for the taxable year an amount equal to

12 85 percent of the eligible matching contribu13 tions made by such institution with respect to

14 an eligible individual under this subsection for

15 such taxable year (determined without regard to

16 any amount described in paragraph (4)(B)). If

17 any amount determined under the preceding

18 sentence is not a multiple of $10, such amount

19 shall be rounded to the next highest multiple of

20 $10.

21 ‘‘(B) LIMITATION BASED ON AMOUNT OF

22 TAX.—The credit allowed under subparagraph

23 (A) for any taxable year shall not exceed the ex24 cess of—
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1 ‘‘(i) the sum of the regular tax liabil2 ity (as defined in section 26(b)) plus the

3 tax imposed by section 55, over

4 ‘‘(ii) the sum of the credits allowable

5 under part IV of subchapter A of this

6 chapter.

7 ‘‘(C) CREDIT TREATED AS ALLOWED

8 UNDER PART IV OF SUBCHAPTER A.—For pur9 poses of subtitle F, the credit allowed under

10 subparagraph (A) shall be treated as a credit

11 allowable under part IV of subchapter A of this

12 chapter.

13 ‘‘(4) FORFEITURE OF MATCHING FUNDS.—

14 ‘‘(A) IN GENERAL.—Amounts in the

15 matching account established under this sub16 section for an eligible individual shall be re17 duced by the amount of any distribution from

18 an Individual Development Account of such in19 dividual which is not a qualified expense dis20 tribution and which is not recontributed as part

21 of a qualified rollover (as defined in subsection

22 (c)(2)(E)).

23 ‘‘(B) USE OF FORFEITED FUNDS.—Eligi24 ble matching contributions which are forfeited

25 by an eligible individual under subparagraph
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1 (A) shall be used by the qualified financial in2 stitution to make eligible matching contribu3 tions for other Individual Development Account

4 contributions by eligible individuals.

5 ‘‘(5) EXCLUSION FROM INCOME.—Gross income

6 of an eligible individual shall not include any eligible

7 matching contribution and the earnings thereon de8 posited into a matching account under paragraph

9 (1) on behalf of such individual.

10 ‘‘(6) REGULAR REPORTING OF MATCHING CON11 TRIBUTIONS.—Any qualified financial institution

12 shall report eligible matching contributions to eligi13 ble individuals with Individual Development Ac14 counts on not less than a quarterly basis.

15 ‘‘(7) TERMINATION.—No eligible matching con16 tribution may be made for any taxable year begin17 ning after December 31, 2005.

18 ‘‘(c) QUALIFIED EXPENSE DISTRIBUTION.—For pur19 poses of this section—

20 ‘‘(1) IN GENERAL.—The term ‘qualified expense

21 distribution’ means any amount paid or distributed

22 out of an Individual Development Account and the

23 matching account established under subsection (b)

24 for an eligible individual if such amount—
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1 ‘‘(A) is used exclusively to pay the quali2 fied expenses of such individual or such individ3 ual’s spouse or dependents,

4 ‘‘(B) is paid by the qualified financial in5 stitution directly to the person to whom the

6 amount is due or to another Individual Develop7 ment Account, and

8 ‘‘(C) is paid after the holder of the Indi9 vidual Development Account has completed an

10 economic literacy course offered by the qualified

11 financial institution, a nonprofit organization,

12 or a government entity.

13 ‘‘(2) QUALIFIED EXPENSES.—

14 ‘‘(A) IN GENERAL.—The term ‘qualified

15 expenses’ means any of the following:

16 ‘‘(i) Qualified higher education ex17 penses.

18 ‘‘(ii) Qualified first-time homebuyer

19 costs.

20 ‘‘(iii) Qualified business capitalization

21 costs.

22 ‘‘(iv) Qualified rollovers.

23 ‘‘(B) QUALIFIED HIGHER EDUCATION EX24 PENSES.—
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1 ‘‘(i) IN GENERAL.—The term ‘quali2 fied higher education expenses’ has the

3 meaning given such term by section

4 72(t)(7), determined by treating postsec5 ondary vocational educational schools as el6 igible educational institutions.

7 ‘‘(ii) POSTSECONDARY VOCATIONAL

8 EDUCATION SCHOOL.—The term ‘postsec9 ondary vocational educational school’

10 means an area vocational education school

11 (as defined in subparagraph (C) or (D) of

12 section 521(4) of the Carl D. Perkins Vo13 cational and Applied Technology Education

14 Act (20 U.S.C. 2471(4))) which is in any

15 State (as defined in section 521(33) of

16 such Act), as such sections are in effect on

17 the date of the enactment of this section.

18 ‘‘(iii) COORDINATION WITH OTHER

19 BENEFITS.—The amount of qualified high20 er education expenses for any taxable year

21 shall be reduced as provided in section

22 25A(g)(2) and by the amount of such ex23 penses for which a credit or exclusion is al24 lowed under this chapter for such taxable

25 year.
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1 ‘‘(C) QUALIFIED FIRST-TIME HOMEBUYER

2 COSTS.—The term ‘qualified first-time home3 buyer costs’ means qualified acquisition costs

4 (as defined in section 72(t)(8) without regard

5 to subparagraph (B) thereof) with respect to a

6 principal residence (within the meaning of sec7 tion 121) for a qualified first-time homebuyer

8 (as defined in section 72(t)(8)).

9 ‘‘(D) QUALIFIED BUSINESS CAPITALIZA10 TION COSTS.—

11 ‘‘(i) IN GENERAL.—The term ‘quali12 fied business capitalization costs’ means

13 qualified expenditures for the capitalization

14 of a qualified business pursuant to a quali15 fied business plan.

16 ‘‘(ii) QUALIFIED EXPENDITURES.—

17 The term ‘qualified expenditures’ means

18 expenditures included in a qualified busi19 ness plan, including capital, plant, equip20 ment, working capital and inventory ex21 penses.

22 ‘‘(iii) QUALIFIED BUSINESS.—The

23 term ‘qualified business’ means any busi24 ness that does not contravene any law.
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1 ‘‘(iv) QUALIFIED BUSINESS PLAN.—

2 The term ‘qualified business plan’ means a

3 business plan which meets such require4 ments as the Secretary of Housing and

5 Urban Development may specify.

6 ‘‘(E) QUALIFIED ROLLOVERS.—The term

7 ‘qualified rollover’ means, with respect to any

8 distribution from an Individual Development

9 Account, the payment, within 120 days of such

10 distribution, of all or a portion of such distribu11 tion to such account or to another Individual

12 Development Account established in another

13 qualified financial institution for the benefit of

14 the eligible individual. Rules similar to the rules

15 of section 408(d)(3) (other than subparagraph

16 (C) thereof) shall apply for purposes of this

17 subparagraph.

18 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur19 poses of this section—

20 ‘‘(1) ELIGIBLE INDIVIDUAL.—

21 ‘‘(A) IN GENERAL.—The term ‘eligible in22 dividual’ means an individual who—

23 ‘‘(i) has attained the age of 18 years,

24 ‘‘(ii) is a citizen or legal resident of

25 the United States, and
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1 ‘‘(iii) is a member of a household—

2 ‘‘(I) which is eligible for the

3 earned income tax credit under sec4 tion 32,

5 ‘‘(II) which is eligible for assist6 ance under a State program funded

7 under part A of title IV of the Social

8 Security Act, or

9 ‘‘(III) the gross income of which

10 does not exceed 60 percent of the area

11 median income (as determined by the

12 Department of Housing and Urban

13 Affairs) and the net worth of which

14 does not exceed $10,000.

15 ‘‘(B) HOUSEHOLD.—The term ‘household’

16 means all individuals who share use of a dwell17 ing unit as primary quarters for living and eat18 ing separate from other individuals.

19 ‘‘(C) DETERMINATION OF NET WORTH.—

20 ‘‘(i) IN GENERAL.—For purposes of

21 subparagraph (A)(iii)(III), the net worth

22 of a household is the amount equal to—

23 ‘‘(I) the aggregate fair market

24 value of all assets that are owned in
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1 whole or in part by any member of a

2 household, minus

3 ‘‘(II) the obligations or debts of

4 any member of the household.

5 ‘‘(ii) CERTAIN ASSETS DIS6 REGARDED.—For purposes of determining

7 the net worth of a household, a household’s

8 assets shall not be considered to include

9 the primary dwelling unit and 1 motor ve10 hicle owned by the household.

11 ‘‘(D) PROOF OF COMPENSATION AND STA12 TUS AS AN ELIGIBLE INDIVIDUAL.—Statements

13 under section 6051 and other forms specified

14 by the Secretary proving the eligible individual’s

15 wages and other compensation and the status of

16 the individual as an eligible individual shall be

17 presented to the custodian at the time of the es18 tablishment of the Individual Development Ac19 count and at least once annually thereafter.

20 ‘‘(2) QUALIFIED FINANCIAL INSTITUTION.—

21 The term ‘qualified financial institution’ means any

22 person authorized to be a trustee of any individual

23 retirement account under section 408(a)(2).
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1 ‘‘(3) TREATMENT OF MORE THAN ONE AC2 COUNT.—All Individual Development Accounts of an

3 individual shall be treated as one account.

4 ‘‘(4) OTHER RULES TO APPLY.—Rules similar

5 to the rules of paragraphs (1), (2), and (3) of sec6 tion 219(f), section 220(f)(8), paragraphs (4) and

7 (6) of section 408(d), and section 408(m) shall apply

8 for purposes of this section.

9 ‘‘(5) REPORTS.—The custodian of an Individual

10 Development Account shall make such reports re11 garding such account to the Secretary and to the in12 dividual for whom the account is maintained with re13 spect to contributions (and the years to which they

14 relate), distributions, and such other matters as the

15 Secretary may require under regulations. The re16 ports required by this paragraph—

17 ‘‘(A) shall be filed at such time and in

18 such manner as the Secretary prescribes in

19 such regulations, and

20 ‘‘(B) shall be furnished to individuals—

21 ‘‘(i) not later than January 31 of the

22 calendar year following the calendar year

23 to which such reports relate, and

24 ‘‘(ii) in such manner as the Secretary

25 prescribes in such regulations.
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1 ‘‘(e) APPLICATION OF SECTION.—This section shall

2 apply to amounts paid to an Individual Development Ac3 count for any taxable year beginning after December 31,

4 2000, and before January 1, 2006.’’

5 (b) TAX ON EXCESS CONTRIBUTIONS.—

6 (1) TAX IMPOSED.—Subsection (a) of section

7 4973 is amended by striking ‘‘or’’ at the end of

8 paragraph (3), adding ‘‘or’’ at the end of paragraph

9 (4), and inserting after paragraph (4) the following

10 new paragraph:

11 ‘‘(5) an Individual Development Account (with12 in the meaning of section 530A(a)),’’.

13 (2) EXCESS CONTRIBUTIONS.—Section 4973 is

14 amended by adding at the end the following new

15 subsection:

16 ‘‘(g) INDIVIDUAL DEVELOPMENT ACCOUNTS.—For

17 purposes of this section, in the case of Individual Develop18 ment Accounts, the term ‘excess contributions’ means the

19 excess (if any) of—

20 ‘‘(1) the amount contributed for the taxable

21 year to the accounts (other than a qualified rollover,

22 as defined in section 530A(c)(2)(E)), over

23 ‘‘(2) the amount allowable as a contribution

24 under section 530A.
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1 For purposes of this subsection, any contribution which

2 is distributed from the Individual Development Account

3 in a distribution to which rules similar to the rules of sec4 tion 408(d)(4) apply by reason of section 530A(d)(4) shall

5 be treated as an amount not contributed.’’

6 (c) INFORMATION RELATING TO CERTAIN TRUSTS

7 AND ANNUITY PLANS.—Subsection (c) of section 6047 is

8 amended—

9 (1) by inserting ‘‘or section 530A’’ after ‘‘sec10 tion 219’’; and

11 (2) by inserting ‘‘, of any Individual Develop12 ment Account described in section 530A(a),’’, after

13 ‘‘section 408(a)’’.

14 (d) FAILURE TO PROVIDE REPORTS ON INDIVIDUAL

15 DEVELOPMENT ACCOUNTS.—Paragraph (2) of section

16 6693(a) is amended by striking ‘‘and’’ at the end of sub17 paragraph (C), by striking the period and inserting ‘‘,

18 and’’ at the end of subparagraph (D), and by adding at

19 the end the following new subparagraph:

20 ‘‘(E) section 530(d)(5) (relating to Indi21 vidual Development Accounts).’’

22 (e) CLERICAL AMENDMENT.—The table of parts for

23 subchapter F of chapter 1 is amended by adding at the

24 end the following new item:

‘‘Part IX. Individual development accounts.’’
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1 (f) FUNDS IN ACCOUNTS DISREGARDED FOR PUR2 POSES OF CERTAIN MEANS-TESTED FEDERAL PRO3 GRAMS.—Notwithstanding any other provision of the In4 ternal Revenue Code of 1986 or the Social Security Act

5 that requires consideration of 1 or more financial cir6 cumstances of an individual, for the purpose of deter7 mining eligibility to receive, or the amount of, any assist8 ance or benefit authorized by such provision to be provided

9 to or for the benefit of such individual, contributions (in10 cluding earnings thereon) in any Individual Development

11 Account and applicable matching account under section

12 530A of such Code shall be disregarded for such purpose.

13 (g) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years beginning after

15 December 31, 2000.

16 SEC. 304. CERTAIN COINS NOT TREATED AS COLLECTIBLES.

17 (a) IN GENERAL.—Subparagraph (A) of section

18 408(m)(3) (relating to exception for certain coins and bul19 lion) is amended to read as follows:

20 ‘‘(A) any coin certified by a recognized

21 grading service and traded on a nationally rec22 ognized electronic network, or listed by a recog23 nized wholesale reporting service, and—

24 ‘‘(i) which is or was at any time legal

25 tender in the United States, or
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•S 1429 PCS

1 ‘‘(ii) issued under the laws of any

2 State, or’’.

3 (b) EFFECTIVE DATE.—The amendment made by

4 this section shall apply to taxable years beginning after

5 December 31, 1999.

6 Subtitle B—Expanding Coverage

7 SEC. 311. OPTION TO TREAT ELECTIVE DEFERRALS AS

8 AFTER-TAX CONTRIBUTIONS.

9 (a) IN GENERAL.—Subpart A of part I of subchapter

10 D of chapter 1 (relating to deferred compensation, etc.)

11 is amended by inserting after section 402 the following

12 new section:

13 ‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFER14 RALS AS PLUS CONTRIBUTIONS.

15 ‘‘(a) GENERAL RULE.—If an applicable retirement

16 plan includes a qualified plus contribution program—

17 ‘‘(1) any designated plus contribution made by

18 an employee pursuant to the program shall be treat19 ed as an elective deferral for purposes of this chap20 ter, except that such contribution shall not be ex21 cludable from gross income, and

22 ‘‘(2) such plan (and any arrangement which is

23 part of such plan) shall not be treated as failing to

24 meet any requirement of this chapter solely by rea25 son of including such program.
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1 ‘‘(b) QUALIFIED PLUS CONTRIBUTION PROGRAM.—

2 For purposes of this section—

3 ‘‘(1) IN GENERAL.—The term ‘qualified plus

4 contribution program’ means a program under which

5 an employee may elect to make designated plus con6 tributions in lieu of all or a portion of elective defer7 rals the employee is otherwise eligible to make under

8 the applicable retirement plan.

9 ‘‘(2) SEPARATE ACCOUNTING REQUIRED.—A

10 program shall not be treated as a qualified plus con11 tribution program unless the applicable retirement

12 plan—

13 ‘‘(A) establishes separate accounts (‘des14 ignated plus accounts’) for the designated plus

15 contributions of each employee and any earn16 ings properly allocable to the contributions, and

17 ‘‘(B) maintains separate recordkeeping

18 with respect to each account.

19 ‘‘(c) DEFINITIONS AND RULES RELATING TO DES20 IGNATED PLUS CONTRIBUTIONS.—For purposes of this

21 section—

22 ‘‘(1) DESIGNATED PLUS CONTRIBUTION.—The

23 term ‘designated plus contribution’ means any elec24 tive deferral which—
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•S 1429 PCS

1 ‘‘(A) is excludable from gross income of an

2 employee without regard to this section, and

3 ‘‘(B) the employee designates (at such time

4 and in such manner as the Secretary may pre5 scribe) as not being so excludable.

6 ‘‘(2) DESIGNATION LIMITS.—The amount of

7 elective deferrals which an employee may designate

8 under paragraph (1) shall not exceed the excess (if

9 any) of—

10 ‘‘(A) the maximum amount of elective de11 ferrals excludable from gross income of the em12 ployee for the taxable year (without regard to

13 this section), over

14 ‘‘(B) the aggregate amount of elective de15 ferrals of the employee for the taxable year

16 which the employee does not designate under

17 paragraph (1).

18 ‘‘(3) ROLLOVER CONTRIBUTIONS.—

19 ‘‘(A) IN GENERAL.—A rollover contribu20 tion of any payment or distribution from a des21 ignated plus account which is otherwise allow22 able under this chapter may be made only if the

23 contribution is to—
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1 ‘‘(i) another designated plus account

2 of the individual from whose account the

3 payment or distribution was made, or

4 ‘‘(ii) a Roth IRA of such individual.

5 ‘‘(B) COORDINATION WITH LIMIT.—Any

6 rollover contribution to a designated plus ac7 count under subparagraph (A) shall not be

8 taken into account for purposes of paragraph

9 (1).

10 ‘‘(d) DISTRIBUTION RULES.—For purposes of this

11 title—

12 ‘‘(1) EXCLUSION.—Any qualified distribution

13 from a designated plus account shall not be includ14 ible in gross income.

15 ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes

16 of this subsection—

17 ‘‘(A) IN GENERAL.—The term ‘qualified

18 distribution’ has the meaning given such term

19 by section 408A(d)(2)(A) (without regard to

20 clause (iv) thereof).

21 ‘‘(B) DISTRIBUTIONS WITHIN NONEXCLU22 SION PERIOD.—A payment or distribution from

23 a designated plus account shall not be treated

24 as a qualified distribution if such payment or
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1 distribution is made within the 5-taxable-year

2 period beginning with the earlier of—

3 ‘‘(i) the 1st taxable year for which the

4 individual made a designated plus con5 tribution to any designated plus account

6 established for such individual under the

7 same applicable retirement plan, or

8 ‘‘(ii) if a rollover contribution was

9 made to such designated plus account from

10 a designated plus account previously estab11 lished for such individual under another

12 applicable retirement plan, the 1st taxable

13 year for which the individual made a des14 ignated plus contribution to such pre15 viously established account.

16 ‘‘(C) DISTRIBUTIONS OF EXCESS DEFER17 RALS AND EARNINGS.—The term ‘qualified dis18 tribution’ shall not include any distribution of

19 any excess deferral under section 402(g)(2) and

20 any income on the excess deferral.

21 ‘‘(3) AGGREGATION RULES.—Section 72 shall

22 be applied separately with respect to distributions

23 and payments from a designated plus account and

24 other distributions and payments from the plan.
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1 ‘‘(e) OTHER DEFINITIONS.—For purposes of this

2 section—

3 ‘‘(1) APPLICABLE RETIREMENT PLAN.—The

4 term ‘applicable retirement plan’ means—

5 ‘‘(A) an employees’ trust described in sec6 tion 401(a) which is exempt from tax under

7 section 501(a), and

8 ‘‘(B) a plan under which amounts are con9 tributed by an individual’s employer for an an10 nuity contract described in section 403(b).

11 ‘‘(2) ELECTIVE DEFERRAL.—The term ‘elective

12 deferral’ means any elective deferral described in

13 subparagraph (A) or (C) of section 402(g)(3).’’

14 (b) EXCESS DEFERRALS.—Section 402(g) (relating

15 to limitation on exclusion for elective deferrals) is

16 amended—

17 (1) by adding at the end of paragraph (1) the

18 following new sentence: ‘‘The preceding sentence

19 shall not apply to so much of such excess as does

20 not exceed the designated plus contributions of the

21 individual for the taxable year.’’, and

22 (2) by inserting ‘‘(or would be included but for

23 the last sentence thereof)’’ after ‘‘paragraph (1)’’ in

24 paragraph (2)(A).
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1 (c) ROLLOVERS.—Subparagraph (B) of section

2 402(c)(8) is amended by adding at the end the following:

3 ‘‘If any portion of an eligible rollover distribu4 tion is attributable to payments or distributions

5 from a designated plus account (as defined in

6 section 402A), an eligible retirement plan with

7 respect to such portion shall include only an8 other designated plus account and a Roth

9 IRA.’’

10 (d) REPORTING REQUIREMENTS.—

11 (1) W–2 INFORMATION.—Section 6051(a)(8) is

12 amended by inserting ‘‘, including the amount of

13 designated plus contributions (as defined in section

14 402A)’’ before the comma at the end.

15 (2) INFORMATION.—Section 6047 is amended

16 by redesignating subsection (f) as subsection (g) and

17 by inserting after subsection (e) the following new

18 subsection:

19 ‘‘(f) DESIGNATED PLUS CONTRIBUTIONS.—The Sec20 retary shall require the plan administrator of each applica21 ble retirement plan (as defined in section 402A) to make

22 such returns and reports regarding designated plus con23 tributions (as so defined) to the Secretary, participants

24 and beneficiaries of the plan, and such other persons as

25 the Secretary may prescribe.’’
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1 (e) CONFORMING AMENDMENTS.—

2 (1) Section 408A(e) is amended by adding after

3 the first sentence the following new sentence: ‘‘Such

4 term includes a rollover contribution described in

5 section 402A(c)(3)(A).’’

6 (2) The table of sections for subpart A of part

7 I of subchapter D of chapter 1 is amended by insert8 ing after the item relating to section 402 the fol9 lowing new item:

‘‘Sec. 402A. Optional treatment of elective deferrals as plus contributions.’’

10 (f) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to taxable years beginning after

12 December 31, 2000.

13 SEC. 312. INCREASE IN ELECTIVE CONTRIBUTION LIMITS.

14 (a) ELECTIVE DEFERRALS.—

15 (1) IN GENERAL.—Paragraph (1) of section

16 402(g) (relating to limitation on exclusion for elec17 tive deferrals) is amended to read as follows:

18 ‘‘(1) IN GENERAL.—

19 ‘‘(A) LIMITATION.—Notwithstanding sub20 sections (e)(3) and (h)(1)(B), the elective defer21 rals of any individual for any taxable year shall

22 be included in such individual’s gross income to

23 the extent the amount of such deferrals for the

24 taxable year exceeds the applicable dollar

25 amount.
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1 ‘‘(B) APPLICABLE DOLLAR AMOUNT.—For

2 purposes of subparagraph (A), the applicable

3 dollar amount shall be the amount determined

4 in accordance with the following table:

‘‘For taxable years The applicable dollar

beginning in calendar year: amount is:

2001 ......................................................................................... $11,000

2002 ......................................................................................... $12,000

2003 ......................................................................................... $13,000

2004 ......................................................................................... $14,000

2005 or thereafter .................................................................... $15,000.’’

5 (2) COST-OF-LIVING ADJUSTMENT.—Paragraph

6 (5) of section 402(g) is amended to read as follows:

7 ‘‘(5) COST-OF-LIVING ADJUSTMENT.—In the

8 case of taxable years beginning after December 31,

9 2005, the Secretary shall adjust the $15,000

10 amount under paragraph (1)(B) at the same time

11 and in the same manner as under section 415(d);

12 except that the base period shall be the calendar

13 quarter beginning July 1, 2004, and any increase

14 under this paragraph which is not a multiple of

15 $500 shall be rounded to the next lowest multiple of

16 $500.’’

17 (3) CONFORMING AMENDMENTS.—

18 (A) Section 402(g) (relating to limitation

19 on exclusion for elective deferrals), as amended

20 by paragraphs (1) and (2), is further amended

21 by striking paragraph (4) and redesignating
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1 paragraphs (5), (6), (7), (8), and (9) as para2 graphs (4), (5), (6), (7), and (8), respectively.

3 (B) Paragraph (2) of section 457(c) is

4 amended by striking ‘‘402(g)(8)(A)(iii)’’ and in5 serting ‘‘402(g)(7)(A)(iii)’’.

6 (C) Clause (iii) of section 501(c)(18)(D) is

7 amended by striking ‘‘(other than paragraph

8 (4) thereof)’’.

9 (b) DEFERRED COMPENSATION PLANS OF STATE

10 AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI11 ZATIONS.—

12 (1) IN GENERAL.—Section 457 (relating to de13 ferred compensation plans of State and local govern14 ments and tax-exempt organizations) is amended—

15 (A) by striking ‘‘$7,500’’ each place it ap16 pears in subsections (b)(2)(A) and (c)(1) and

17 inserting ‘‘the applicable dollar amount’’, and

18 (B) by striking ‘‘$15,000’’ in subsection

19 (b)(3)(A) and inserting ‘‘twice the dollar

20 amount in effect under subsection (b)(2)(A)’’.

21 (2) APPLICABLE DOLLAR AMOUNT; COST-OF22 LIVING ADJUSTMENT.—Paragraph (15) of section

23 457(e) is amended to read as follows:

24 ‘‘(15) APPLICABLE DOLLAR AMOUNT.—
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1 ‘‘(A) IN GENERAL.—The applicable dollar

2 amount shall be the amount determined in ac3 cordance with the following table:

‘‘For taxable years The applicable dollar

beginning in calendar year: amount is:

2001 ......................................................................................... $9,000

2002 ......................................................................................... $10,000

2003 ......................................................................................... $11,000

2004 or thereafter .................................................................... $12,000.

4 ‘‘(B) COST-OF-LIVING ADJUSTMENTS.—In

5 the case of taxable years beginning after De6 cember 31, 2004, the Secretary shall adjust the

7 $12,000 amount specified in the table in sub8 paragraph (A) at the same time and in the

9 same manner as under section 415(d), except

10 that the base period shall be the calendar quar11 ter beginning July 1, 2003, and any increase

12 under this paragraph which is not a multiple of

13 $500 shall be rounded to the next lowest mul14 tiple of $500.’’

15 (c) SIMPLE RETIREMENT ACCOUNTS.—

16 (1) LIMITATION.—Clause (ii) of section

17 408(p)(2)(A) (relating to general rule for qualified

18 salary reduction arrangement) is amended by strik19 ing ‘‘$6,000’’ and inserting ‘‘the applicable dollar

20 amount’’.
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1 (2) APPLICABLE DOLLAR AMOUNT.—Subpara2 graph (E) of 408(p)(2) is amended to read as fol3 lows:

4 ‘‘(E) APPLICABLE DOLLAR AMOUNT; COST5 OF-LIVING ADJUSTMENT.—

6 ‘‘(i) IN GENERAL.—For purposes of

7 subparagraph (A)(ii), the applicable dollar

8 amount shall be the amount determined in

9 accordance with the following table:

‘‘For taxable years The applicable dollar

beginning in calendar year: amount is:

2001 ......................................................................................... $7,000

2002 ......................................................................................... $8,000

2003 ......................................................................................... $9,000

2004 or thereafter .................................................................... $10,000.

10 ‘‘(ii) COST-OF-LIVING ADJUSTMENT.—

11 In the case of a year beginning after De12 cember 31, 2004, the Secretary shall ad13 just the $10,000 amount under clause (i)

14 at the same time and in the same manner

15 as under section 415(d), except that the

16 base period taken into account shall be the

17 calendar quarter beginning July 1, 2003,

18 and any increase under this subparagraph

19 which is not a multiple of $500 shall be

20 rounded to the next lower multiple of

21 $500.’’

22 (3) CONFORMING AMENDMENTS.—
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1 (A) Subclause (I) of section

2 401(k)(11)(B)(i) is amended by striking

3 ‘‘$6,000’’ and inserting ‘‘the amount in effect

4 under section 408(p)(2)(A)(ii)’’.

5 (B) Section 401(k)(11) is amended by

6 striking subparagraph (E).

7 (d) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to years beginning after December

9 31, 2000.

10 SEC. 313. PLAN LOANS FOR SUBCHAPTER S OWNERS, PART11 NERS, AND SOLE PROPRIETORS.

12 (a) AMENDMENT TO 1986 CODE.—Subparagraph

13 (B) of section 4975(f)(6) (relating to exemptions not to

14 apply to certain transactions) is amended by adding at the

15 end the following new clause:

16 ‘‘(iii) LOAN EXCEPTION.—For pur17 poses of subparagraph (A)(i), the term

18 ‘owner-employee’ shall only include a per19 son described in subclause (II) or (III) of

20 clause (i).’’

21 (b) AMENDMENT TO ERISA.—Section 408(d)(2) of

22 the Employee Retirement Income Security Act of 1974

23 (29 U.S.C. 1108(d)(2)) is amended by adding at the end

24 the following new subparagraph:
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1 ‘‘(C) For purposes of paragraph (1)(A), the term

2 ‘owner-employee’ shall only include a person described in

3 clause (ii) or (iii) of subparagraph (A).’’

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to loans made after December 31,

6 2000.

7 SEC. 314. ELECTIVE DEFERRALS NOT TAKEN INTO AC8 COUNT FOR PURPOSES OF DEDUCTION LIM9 ITS.

10 (a) IN GENERAL.—Section 404 (relating to deduction

11 for contributions of an employer to an employees’ trust

12 or annuity plan and compensation under a deferred pay13 ment plan) is amended by adding at the end the following

14 new subsection:

15 ‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO AC16 COUNT FOR PURPOSES OF DEDUCTION LIMITS.—Elective

17 deferrals (as defined in section 402(g)(3)) shall not be

18 subject to any limitation contained in paragraph (3), (7),

19 or (9) of subsection (a), and such elective deferrals shall

20 not be taken into account in applying any such limitation

21 to any other contributions.’’

22 (b) EFFECTIVE DATE.—The amendment made by

23 this section shall apply to years beginning after December

24 31, 2000.
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1 SEC. 315. REDUCED PBGC PREMIUM FOR NEW PLANS OF

2 SMALL EMPLOYERS.

3 (a) IN GENERAL.—Subparagraph (A) of section

4 4006(a)(3) of the Employee Retirement Income Security

5 Act of 1974 (29 U.S.C. 1306(a)(3)(A)) is amended—

6 (1) in clause (i), by inserting ‘‘other than a new

7 single-employer plan (as defined in subparagraph

8 (F)) maintained by a small employer (as so de9 fined),’’ after ‘‘single-employer plan,’’,

10 (2) in clause (iii), by striking the period at the

11 end and inserting ‘‘, and’’, and

12 (3) by adding at the end the following new

13 clause:

14 ‘‘(iv) in the case of a new single-employer plan

15 (as defined in subparagraph (F)) maintained by a

16 small employer (as so defined) for the plan year, $5

17 for each individual who is a participant in such plan

18 during the plan year.’’

19 (b) DEFINITION OF NEW SINGLE-EMPLOYER

20 PLAN.—Section 4006(a)(3) of the Employee Retirement

21 Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is

22 amended by adding at the end the following new subpara23 graph:

24 ‘‘(F)(i) For purposes of this paragraph, a single-em25 ployer plan maintained by a contributing sponsor shall be

26 treated as a new single-employer plan for each of its first
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1 5 plan years if, during the 36-month period ending on the

2 date of the adoption of such plan, the sponsor or any

3 member of such sponsor’s controlled group (or any prede4 cessor of either) had not established or maintained a plan

5 to which this title applies with respect to which benefits

6 were accrued for substantially the same employees as are

7 in the new single-employer plan.

8 ‘‘(ii)(I) For purposes of this paragraph, the term

9 ‘small employer’ means an employer which on the first day

10 of any plan year has, in aggregation with all members of

11 the controlled group of such employer, 100 or fewer em12 ployees.

13 ‘‘(II) In the case of a plan maintained by 2 or more

14 contributing sponsors that are not part of the same con15 trolled group, the employees of all contributing sponsors

16 and controlled groups of such sponsors shall be aggregated

17 for purposes of determining whether any contributing

18 sponsor is a small employer.’’

19 (c) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to plans established after Decem21 ber 31, 2000.

22 SEC. 316. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR

23 NEW PLANS.

24 (a) IN GENERAL.—Subparagraph (E) of section

25 4006(a)(3) of the Employee Retirement Income Security
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1 Act of 1974 (29 U.S.C. 1306(a)(3)(E)) is amended by

2 adding at the end the following new clause:

3 ‘‘(v) In the case of a new defined benefit plan, the

4 amount determined under clause (ii) for any plan year

5 shall be an amount equal to the product of the amount

6 determined under clause (ii) and the applicable percent7 age. For purposes of this clause, the term ‘applicable per8 centage’ means—

9 ‘‘(I) 0 percent, for the first plan year.

10 ‘‘(II) 20 percent, for the second plan year.

11 ‘‘(III) 40 percent, for the third plan year.

12 ‘‘(IV) 60 percent, for the fourth plan year.

13 ‘‘(V) 80 percent, for the fifth plan year.

14 For purposes of this clause, a defined benefit plan (as de15 fined in section 3(35)) maintained by a contributing spon16 sor shall be treated as a new defined benefit plan for its

17 first 5 plan years if, during the 36-month period ending

18 on the date of the adoption of the plan, the sponsor and

19 each member of any controlled group including the spon20 sor (or any predecessor of either) did not establish or

21 maintain a plan to which this title applies with respect

22 to which benefits were accrued for substantially the same

23 employees as are in the new plan.’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to plans established after Decem3 ber 31, 2000.

4 SEC. 317. ELIMINATION OF USER FEE FOR REQUESTS TO

5 IRS REGARDING NEW PENSION PLANS.

6 (a) ELIMINATION OF CERTAIN USER FEES.—The

7 Secretary of the Treasury or the Secretary’s delegate shall

8 not require payment of user fees under the program estab9 lished under section 7527 of the Internal Revenue Code

10 of 1986 for requests to the Internal Revenue Service for

11 ruling letters, opinion letters, and determination letters or

12 similar requests with respect to the qualified status of a

13 new pension benefit plan or any trust which is part of the

14 plan.

15 (b) NEW PENSION BENEFIT PLAN.—For purposes of

16 this section—

17 (1) IN GENERAL.—The term ‘‘new pension ben18 efit plan’’ means a pension, profit-sharing, stock

19 bonus, annuity, or employee stock ownership plan

20 which is maintained by one or more eligible employ21 ers if such employer (or any predecessor employer)

22 has not made a prior request described in subsection

23 (a) for such plan (or any predecessor plan).

24 (2) ELIGIBLE EMPLOYER.—The term ‘‘eligible

25 employer’’ means an employer (or any predecessor
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1 employer) which has not established or maintained a

2 qualified employer plan with respect to which con3 tributions were made, or benefits were accrued for

4 service, in the 3 most recent taxable years ending

5 prior to the first taxable year in which the request

6 is made.

7 (c) EFFECTIVE DATE.—The provisions of this section

8 shall apply with respect to requests made after December

9 31, 2000.

10 SEC. 318. SAFE ANNUITIES AND TRUSTS.

11 (a) IN GENERAL.—Subpart A of part I of subchapter

12 D of chapter 1 (relating to deferred compensation, etc.)

13 is amended by inserting after section 408A the following

14 new section:

15 ‘‘SEC. 408B. SAFE ANNUITIES AND TRUSTS.

16 ‘‘(a) EMPLOYER ELIGIBILITY.—

17 ‘‘(1) IN GENERAL.—An employer may establish

18 and maintain a SAFE annuity or a SAFE trust for

19 any year only if—

20 ‘‘(A) the employer is an eligible employer

21 (as defined in section 408(p)(2)(C)), and

22 ‘‘(B) the employer does not maintain (and

23 no predecessor of the employer maintains) a

24 qualified plan (other than a permissible plan)

25 with respect to which contributions were made,
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1 or benefits were accrued, for service in any year

2 in the period beginning with the year such an3 nuity or trust became effective and ending with

4 the year for which the determination is being

5 made.

6 ‘‘(2) DEFINITIONS.—For purposes of paragraph

7 (1)—

8 ‘‘(A) QUALIFIED PLAN.—The term ‘quali9 fied plan’ has the meaning given such term by

10 section 408(p)(2)(D)(ii).

11 ‘‘(B) PERMISSIBLE PLAN.—The term ‘per12 missible plan’ means—

13 ‘‘(i) a SIMPLE plan described in sec14 tion 408(p),

15 ‘‘(ii) a SIMPLE 401(k) plan de16 scribed in section 401(k)(11),

17 ‘‘(iii) an eligible deferred compensa18 tion plan described in section 457(b),

19 ‘‘(iv) a collectively bargained plan but

20 only if the employees eligible to participate

21 in such plan are not also entitled to a ben22 efit described in subsection (b)(5) or

23 (c)(5), or

24 ‘‘(v) a plan under which there may be

25 made only—
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1 ‘‘(I) elective deferrals described

2 in section 402(g)(3), and

3 ‘‘(II) employer matching con4 tributions not in excess of the

5 amounts described in subclauses (I)

6 and (II) of section 401(k)(12)(B)(i).

7 ‘‘(b) SAFE ANNUITY.—

8 ‘‘(1) IN GENERAL.—For purposes of this title,

9 the term ‘SAFE annuity’ means an individual retire10 ment annuity (as defined in section 408(b) without

11 regard to paragraph (2) thereof and without regard

12 to the limitation on aggregate annual premiums con13 tained in the flush language of section 408(b)) if—

14 ‘‘(A) such annuity meets the requirements

15 of paragraphs (2) through (7), and

16 ‘‘(B) the only contributions to such annu17 ity (other than rollover contributions) are em18 ployer contributions.

19 Nothing in this section shall be construed as pre20 venting an employer from using a group annuity

21 contract which is divisible into individual retirement

22 annuities for purposes of providing SAFE annuities.

23 ‘‘(2) PARTICIPATION REQUIREMENTS.—
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1 ‘‘(A) IN GENERAL.—The requirements of

2 this paragraph are met for any year only if all

3 employees of the employer who—

4 ‘‘(i) received at least $5,000 in com5 pensation from the employer during any 2

6 consecutive preceding years, and

7 ‘‘(ii) received at least $5,000 in com8 pensation during the year,

9 are entitled to the benefit described in para10 graph (5) for such year.

11 ‘‘(B) EXCLUDABLE EMPLOYEES.—An em12 ployer may elect to exclude from the require13 ments under subparagraph (A) employees de14 scribed in section 410(b)(3).

15 ‘‘(3) VESTING.—The requirements of this para16 graph are met if the employee’s rights to any bene17 fits under the annuity are nonforfeitable.

18 ‘‘(4) BENEFIT FORM.—

19 ‘‘(A) IN GENERAL.—The requirements of

20 this paragraph are met if the only form of ben21 efit is—

22 ‘‘(i) a benefit payable annually in the

23 form of a single life annuity with monthly

24 payments (with no ancillary benefits) be25 ginning at age 65, or
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1 ‘‘(ii) at the election of the participant,

2 any other form of benefit which is the ac3 tuarial equivalent (based on the assump4 tions specified in the SAFE annuity) of

5 the benefit described in clause (i).

6 The requirements of section 401(a)(11) shall

7 apply to the benefits described in this subpara8 graph.

9 ‘‘(B) DIRECT TRANSFERS AND ROLL10 OVERS.—A plan shall not fail to meet the re11 quirements of this paragraph by reason of per12 mitting, at the election of the employee, a trust13 ee-to-trustee transfer or a rollover contribution.

14 ‘‘(5) AMOUNT OF ANNUAL ACCRUED BEN15 EFIT.—

16 ‘‘(A) IN GENERAL.—The requirements of

17 this paragraph are met for any year if the ac18 crued benefit of each participant derived from

19 employer contributions for such year, when ex20 pressed as a benefit described in paragraph

21 (4)(A), is not less than the applicable percent22 age of the participant’s compensation for such

23 year.

24 ‘‘(B) APPLICABLE PERCENTAGE.—For

25 purposes of this paragraph—
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1 ‘‘(i) IN GENERAL.—The term ‘applica2 ble percentage’ means 3 percent.

3 ‘‘(ii) ELECTION OF LOWER PERCENT4 AGE.—An employer may elect to apply an

5 applicable percentage of 1 percent, 2 per6 cent or zero percent for any plan year for

7 all employees eligible to participate in the

8 plan for such year if the employer notifies

9 the employees of such percentage within a

10 reasonable period before the beginning of

11 such year.

12 ‘‘(C) COMPENSATION LIMIT.—The com13 pensation taken into account under this para14 graph for any year shall not exceed the limita15 tion in effect for such year under section

16 401(a)(17).

17 ‘‘(D) CREDIT FOR SERVICE BEFORE PLAN

18 ADOPTED.—

19 ‘‘(i) IN GENERAL.—An employer may

20 elect to take into account a specified num21 ber of years of service (not greater than

22 10) performed before the adoption of the

23 plan (each hereinafter referred to as a

24 ‘prior service year’) as service under the

25 plan if the same specified number of years
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1 is available to all employees eligible to par2 ticipate in the plan for the first plan year.

3 ‘‘(ii) ACCRUAL OF PRIOR SERVICE

4 BENEFIT.—Such an election shall be effec5 tive for a prior service year only if the re6 quirements of this paragraph are met for

7 an eligible plan year (with respect to em8 ployees entitled to credit for such prior

9 service year) by doubling the applicable

10 percentage (if any) for such plan year. For

11 purposes of the preceding sentence, an eli12 gible plan year is a plan year in the period

13 of consecutive plan years (but not more

14 than the number specified under clause (i))

15 beginning with the first plan year that the

16 plan is in effect.

17 ‘‘(iii) ELECTION MAY NOT APPLY TO

18 CERTAIN PRIOR SERVICE YEARS.—This

19 subparagraph shall not apply with respect

20 to any prior service year of an employee

21 if—

22 ‘‘(I) for any part of such prior

23 service year such employee was an ac24 tive participant (within the meaning

25 of section 219(g)(5)) under any de-
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1 fined benefit plan of the employer (or

2 any predecessor thereof), or

3 ‘‘(II) such employee received dur4 ing such prior service year less than

5 $5,000 in compensation from the em6 ployer.

7 ‘‘(6) FUNDING.—

8 ‘‘(A) IN GENERAL.—The requirements of

9 this paragraph are met only if the employer is

10 required to contribute to the annuity for each

11 plan year the amount necessary to purchase a

12 SAFE annuity in the amount of the benefit ac13 crued for such year for each participant entitled

14 to such benefit.

15 ‘‘(B) TIME WHEN CONTRIBUTIONS

16 DEEMED MADE.—For purposes of this para17 graph, an employer shall be deemed to have

18 made a contribution on the last day of the pre19 ceding taxable year if the payment is on ac20 count of such taxable year and is made not

21 later than the time prescribed by law for filing

22 the return for such taxable year (including ex23 tensions thereof).

24 ‘‘(C) PENALTY FOR FAILURE TO MAKE RE25 QUIRED CONTRIBUTION.—The taxes imposed by
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1 section 4971 shall apply to a failure to make

2 the contribution required by this paragraph in

3 the same manner as if the amount of the failure

4 were an accumulated funding deficiency to

5 which such section applies.

6 ‘‘(7) LIMITATION ON DISTRIBUTIONS.—The re7 quirements of this paragraph are met only if pay8 ments under the contract may be made only after

9 the employee attains age 65 or when the employee

10 separates from service, dies, or becomes disabled

11 (within the meaning of section 72(m)(7)).

12 ‘‘(c) SAFE TRUST.—

13 ‘‘(1) IN GENERAL.—For purposes of this title,

14 the term ‘SAFE trust’ means a trust forming part

15 of a defined benefit plan if—

16 ‘‘(A) such trust meets the requirements of

17 section 401(a) as modified by subsection (d),

18 ‘‘(B) a participant’s benefits under the

19 plan are based solely on the balance of a sepa20 rate account in such plan of such participant,

21 ‘‘(C) such plan meets the requirements of

22 paragraphs (2) through (8), and

23 ‘‘(D) the only contributions to such trust

24 (other than rollover contributions) are employer

25 contributions.
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1 ‘‘(2) PARTICIPATION REQUIREMENTS.—A plan

2 meets the requirements of this paragraph for any

3 year only if the requirements of subsection (b)(2)

4 are met for such year.

5 ‘‘(3) VESTING.—A plan meets the requirements

6 of this paragraph for any year only if the require7 ments of subsection (b)(3) are met for such year.

8 ‘‘(4) BENEFIT FORM.—

9 ‘‘(A) IN GENERAL.—Except as provided in

10 subparagraph (B), a plan meets the require11 ments of this paragraph only if the trustee dis12 tributes a SAFE annuity that satisfies sub13 section (b)(4) where the annual benefit de14 scribed in subsection (b)(4)(A) is not less than

15 the accrued benefit determined under para16 graph (5).

17 ‘‘(B) DIRECT TRANSFERS TO INDIVIDUAL

18 RETIREMENT PLAN OR SAFE ANNUITY.—A plan

19 shall not fail to meet the requirements of this

20 paragraph by reason of permitting, as an op21 tional form of benefit, the distribution of the

22 entire balance to the credit of the employee. If

23 the employee is under age 65, such distribution

24 must be in the form of a direct trustee-to-trust25 ee transfer to a SAFE annuity, another SAFE
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1 trust, or a SAFE rollover plan (or, in the case

2 of a distribution that does not exceed the dollar

3 limit in effect under section 411(a)(11)(A), any

4 other individual retirement plan).

5 ‘‘(C) SAFE ROLLOVER PLAN.—For pur6 poses of this section, the term ‘SAFE rollover

7 plan’ means an individual retirement plan for

8 the benefit of the employee to which a rollover

9 was made from a SAFE annuity, SAFE trust,

10 or another SAFE rollover plan.

11 ‘‘(5) AMOUNT OF ANNUAL ACCRUED BEN12 EFIT.—A plan meets the requirements of this para13 graph for any year only if the requirements of sub14 section (b)(5) are met for such year.

15 ‘‘(6) FUNDING.—

16 ‘‘(A) IN GENERAL.—A plan meets the re17 quirements of this paragraph for any year only

18 if—

19 ‘‘(i) the requirements of subsection

20 (b)(6) are met for such year,

21 ‘‘(ii) in the case of a plan which has

22 an unfunded annuity amount with respect

23 to the account of any participant, the plan

24 requires that the employer make an addi25 tional contribution to such plan (at the
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•S 1429 PCS

1 time the annuity contract to which such

2 amount relates is purchased) equal to the

3 unfunded annuity amount, and

4 ‘‘(iii) in the case of a plan which has

5 an unfunded prior year liability as of the

6 close of such plan year, the plan requires

7 that the employer make an additional con8 tribution to such plan for such year equal

9 to the amount of such unfunded prior year

liability no later than 81 10 ⁄2 months following

11 the end of the plan year.

12 ‘‘(B) UNFUNDED ANNUITY AMOUNT.—For

13 purposes of this paragraph, the term ‘unfunded

14 annuity amount’ means, with respect to the ac15 count of any participant for whom an annuity

16 is being purchased, the excess (if any) of—

17 ‘‘(i) the amount necessary to purchase

18 an annuity contract which meets the re19 quirements of subsection (b)(4) in the

20 amount of the participant’s accrued benefit

21 determined under paragraph (5), over

22 ‘‘(ii) the balance in such account at

23 the time such contract is purchased.

24 ‘‘(C) UNFUNDED PRIOR YEAR LIABIL25 ITY.—For purposes of this paragraph, the term
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1 ‘unfunded prior year liability’ means, with re2 spect to any plan year, the excess (if any) of—

3 ‘‘(i) the aggregate of the present value

4 of the accrued liabilities under the plan as

5 of the close of the prior plan year, over

6 ‘‘(ii) the value of the plan’s assets de7 termined under section 412(c)(2) as of the

8 close of the plan year (determined without

9 regard to any contributions for such plan

10 year).

11 Such present value shall be determined using

12 the assumptions specified in subparagraph (D).

13 ‘‘(D) ACTUARIAL ASSUMPTIONS.—In deter14 mining the amount required to be contributed

15 under subparagraph (A)—

16 ‘‘(i) the assumed interest rate shall be

17 not less than 3 percent, and not greater

18 than 5 percent, per year,

19 ‘‘(ii) the assumed mortality shall be

20 determined under the applicable mortality

21 table (as defined in section 417(e)(3), as

22 modified by the Secretary so that it does

23 not include any assumption for preretire24 ment mortality), and
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1 ‘‘(iii) the assumed retirement age

2 shall be 65.

3 ‘‘(E) CHANGES IN MORTALITY TABLE.—If,

4 for purposes of this subsection, the applicable

5 mortality table under section 417(e)(3) for any

6 plan year is not the same as such table for the

7 prior plan year, the Secretary shall prescribe

8 regulations for such purposes which phase in

9 the effect of the changes over a reasonable pe10 riod of plan years determined by the Secretary.

11 ‘‘(F) PENALTY FOR FAILURE TO MAKE RE12 QUIRED CONTRIBUTION.—The taxes imposed by

13 section 4971 shall apply to a failure to make

14 the contribution required by this paragraph in

15 the same manner as if the amount of the failure

16 were an accumulated funding deficiency to

17 which such section applies.

18 ‘‘(7) SEPARATE ACCOUNTS FOR PARTICI19 PANTS.—A plan meets the requirements of this

20 paragraph for any year only if the plan provides—

21 ‘‘(A) for an individual account for each

22 participant, and

23 ‘‘(B) for benefits based solely on—

24 ‘‘(i) the amount contributed to the

25 participant’s account,
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•S 1429 PCS

1 ‘‘(ii) any income, expenses, gains and

2 losses, and any forfeitures of accounts of

3 other participants which may be allocated

4 to such participant’s account, and

5 ‘‘(iii) the amount of any unfunded an6 nuity amount with respect to the partici7 pant.

8 ‘‘(8) TRUST MAY NOT HOLD SECURITIES WHICH

9 ARE NOT READILY TRADABLE.—A plan meets the

10 requirements of this paragraph only if the plan pro11 hibits the trust from holding directly or indirectly se12 curities which are not readily tradable on an estab13 lished securities market or otherwise. Nothing in

14 this paragraph shall prohibit the trust from holding

15 insurance company products regulated by State law.

16 ‘‘(d) SPECIAL RULES FOR SAFE ANNUITIES AND

17 TRUSTS.—

18 ‘‘(1) CERTAIN REQUIREMENTS TREATED AS

19 MET.—For purposes of section 401(a), a SAFE an20 nuity and a SAFE trust shall be treated as meeting

21 the requirements of the following provisions:

22 ‘‘(A) Section 401(a)(4) (relating to non23 discrimination rules).

24 ‘‘(B) Section 401(a)(26) (relating to min25 imum participation).
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•S 1429 PCS

1 ‘‘(C) Section 410 (relating to minimum

2 participation and coverage requirements).

3 ‘‘(D) Section 411(b) (relating to accrued

4 benefit requirements).

5 ‘‘(E) Section 412 (relating to minimum

6 funding standards).

7 ‘‘(F) Section 415 (relating to limitations

8 on benefits and contributions under qualified

9 plans).

10 ‘‘(G) Section 416 (relating to special rules

11 for top-heavy plans).

12 ‘‘(2) CONTRIBUTIONS NOT TAKEN INTO AC13 COUNT IN APPLYING LIMITS TO OTHER PLANS.—

14 ‘‘(A) DEDUCTION LIMITS.—Contributions

15 to a SAFE annuity or a SAFE trust shall not

16 be taken into account in applying sections 404

17 to other plans maintained by the employer.

18 ‘‘(B) BENEFIT LIMITS.—A SAFE annuity

19 or a SAFE trust shall be treated as a defined

20 benefit plan for purposes of section 415.

21 ‘‘(3) USE OF DESIGNATED FINANCIAL INSTITU22 TIONS.—A rule similar to the rule of section

23 408(p)(7) (without regard to the last sentence there24 of) shall apply for purposes of this section.
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•S 1429 PCS

1 ‘‘(4) DEFINITIONS.—The definitions in section

2 408(p)(6) shall apply for purposes of this section.’’

3 (b) DEDUCTION LIMITS NOT TO APPLY TO EM4 PLOYER CONTRIBUTIONS.—

5 (1) IN GENERAL.—Section 404 (relating to de6 ductions for contributions of an employer to pension,

7 etc., plans), as amended by section 314, is amended

8 by adding at the end the following new subsection:

9 ‘‘(o) SPECIAL RULES FOR SAFE ANNUITIES.—

10 ‘‘(1) IN GENERAL.—Employer contributions to

11 a SAFE annuity shall be treated as if they are made

12 to a plan subject to the requirements of this section.

13 ‘‘(2) DEDUCTIBLE LIMIT.—For purposes of

14 subsection (a)(1)(A)(i), the amount necessary to sat15 isfy the minimum funding requirement of section

16 408B(b)(6) or (c)(6) shall be treated as the amount

17 necessary to satisfy the minimum funding require18 ment of section 412.’’

19 (2) COORDINATION WITH DEDUCTION UNDER

20 SECTION 219.—

21 (A) Section 219(b) (relating to maximum

22 amount of deduction), as amended by section

23 301, is amended by adding at the end the fol24 lowing new paragraph:
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1 ‘‘(6) SPECIAL RULE FOR SAFE ANNUITIES.—

2 This section shall not apply with respect to any

3 amount contributed to a SAFE annuity established

4 under section 408B(b).’’

5 (B) Section 219(g)(5)(A) (defining active

6 participant) is amended by striking ‘‘or’’ at the

7 end of clause (v) and by adding at the end the

8 following new clause:

9 ‘‘(vii) any SAFE annuity (within the

10 meaning of section 408B), or’’.

11 (c) CONTRIBUTIONS AND DISTRIBUTIONS.—

12 (1) Section 402 (relating to taxability of bene13 ficiary of employees’ trust) is amended by adding at

14 the end the following new subsection:

15 ‘‘(l) TREATMENT OF SAFE ANNUITIES.—Rules simi16 lar to the rules of paragraphs (1) and (3) of subsection

17 (h) shall apply to contributions and distributions with re18 spect to a SAFE annuities under section 408B.’’

19 (2) Section 408(d)(3) is amended by adding at

20 the end the following new subparagraph:

21 ‘‘(H) SAFE ANNUITIES.—This paragraph

22 shall not apply to any amount paid or distrib23 uted out of a SAFE annuity (as defined in sec24 tion 408B) unless it is paid in a trustee-to25 trustee transfer into another SAFE annuity.’’
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1 (d) INCREASED PENALTY ON EARLY WITH2 DRAWALS.—Section 72(t) (relating to additional tax on

3 early distributions) is amended by adding at the end the

4 following new paragraph:

5 ‘‘(7) SPECIAL RULES FOR SAFE ANNUITIES AND

6 TRUSTS.—In the case of any amount received from

7 a SAFE annuity or a SAFE trust (within the mean8 ing of section 408B), paragraph (1) shall be applied

9 by substituting ‘20 percent’ for ‘10 percent’.’’

10 (e) SIMPLIFIED EMPLOYER REPORTS.—

11 (1) SAFE ANNUITIES.—Section 408(l) (relating

12 to simplified employer reports) is amended by add13 ing at the end the following new paragraph:

14 ‘‘(3) SAFE ANNUITIES.—

15 ‘‘(A) SIMPLIFIED REPORT.—The employer

16 maintaining any SAFE annuity (within the

17 meaning of section 408B) shall file a simplified

18 annual return with the Secretary containing

19 only the information described in subparagraph

20 (B).

21 ‘‘(B) CONTENTS.—The return required by

22 subparagraph (A) shall set forth—

23 ‘‘(i) the name and address of the em24 ployer,

25 ‘‘(ii) the date the plan was adopted,
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1 ‘‘(iii) the number of employees of the

2 employer,

3 ‘‘(iv) the number of such employees

4 who are eligible to participate in the plan,

5 ‘‘(v) the total amount contributed by

6 the employer to each such annuity for such

7 year and the minimum amount required

8 under section 408B to be so contributed,

9 ‘‘(vi) the percentage elected under sec10 tion 408B(b)(5)(B), and

11 ‘‘(vii) the number of employees with

12 respect to whom contributions are required

13 to be made for such year under section

14 408B(b)(5)(D).

15 ‘‘(C) REPORTING BY ISSUER OF SAFE AN16 NUITY.—

17 ‘‘(i) IN GENERAL.—The issuer of each

18 SAFE annuity shall provide to the owner

19 of the annuity for each year a statement

20 setting forth as of the close of such year—

21 ‘‘(I) the benefits guaranteed at

22 age 65 under the annuity, and

23 ‘‘(II) the cash surrender value of

24 the annuity.
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1 ‘‘(ii) SUMMARY DESCRIPTION.—The

2 issuer of any SAFE annuity shall provide

3 to the employer maintaining the annuity

4 for each year a description containing the

5 following information:

6 ‘‘(I) The name and address of

7 the employer and the issuer.

8 ‘‘(II) The requirements for eligi9 bility for participation.

10 ‘‘(III) The benefits provided with

11 respect to the annuity.

12 ‘‘(IV) The procedures for, and ef13 fects of, withdrawals (including roll14 overs) from the annuity.

15 ‘‘(D) TIME AND MANNER OF REPORT16 ING.—Any return, report, or statement required

17 under this paragraph shall be made in such

18 form and at such time as the Secretary shall

19 prescribe.’’

20 (2) SAFE TRUSTS.—Section 6059 (relating to

21 actuarial reports) is amended by redesignating sub22 sections (c) and (d) as subsections (d) and (e), re23 spectively, and by inserting after subsection (b) the

24 following new subsection:
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•S 1429 PCS

1 ‘‘(c) SAFE TRUSTS.—In the case of a SAFE trust

2 (within the meaning of section 408B), the Secretary shall

3 require a simplified actuarial report which contains infor4 mation similar to the information required in section

5 408(l)(3)(B).’’

6 (f) CONFORMING AMENDMENTS.—

7 (1) Section 280G(b)(6) is amended by striking

8 ‘‘or’’ at the end of subparagraph (C), by striking the

9 period at the end of subparagraph (D) and inserting

10 ‘‘, or’’ and by adding after subparagraph (D) the

11 following new subparagraph:

12 ‘‘(E) a SAFE annuity described in section

13 408B.’’

14 (2) Clause (ii) of section 408(p)(2)(D) is

15 amended by inserting before the period ‘‘(other than

16 clause (vii) of such subparagraph (A))’’.

17 (3) Subsections (b), (c), (m)(4)(B), and

18 (n)(3)(B) of section 414 are each amended by in19 serting ‘‘408B,’’ after ‘‘408(p),’’.

20 (4) Section 4972(d)(1)(A) is amended by strik21 ing ‘‘and’’ at the end of clause (iii), by striking the

22 period at the end of clause (iv) and inserting ‘‘,

23 and’’, and by adding after clause (iv) the following

24 new clause:
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1 ‘‘(v) any SAFE annuity (within the

2 meaning of section 408B).’’

3 (5) The table of sections for subpart A of part

4 I of subchapter D of chapter 1 is amended by insert5 ing after the item relating to section 408A the fol6 lowing new item:

‘‘Sec. 408B. SAFE annuities and trusts.’’

7 (g) MODIFICATIONS OF ERISA.—

8 (1) EXEMPTION FROM INSURANCE COV9 ERAGE.—Subsection (b) of section 4021 of the Em10 ployee Retirement Income Security Act of 1974 (29

11 U.S.C. 1321) is amended by striking ‘‘or’’ at the end

12 of paragraph (12), by striking the period at the end

13 of paragraph (13) and inserting ‘‘; or’’, and by add14 ing at the end the following new paragraph:

15 ‘‘(14) which is established and maintained as

16 part of a SAFE trust (as defined in section 408B

17 of the Internal Revenue Code of 1986).’’

18 (2) REPORTING REQUIREMENTS.—Section 101

19 of such Act (29 U.S.C. 1021) is amended by redes20 ignating the second subsection (h) as subsection (j)

21 and by inserting after the first subsection (h) the

22 following new subsection:

23 ‘‘(i) SAFE ANNUITIES.—

24 ‘‘(1) NO EMPLOYER REPORTS.—Except as pro25 vided in this subsection, no report shall be required
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1 under this section by an employer maintaining a

2 SAFE annuity under section 408B(b) of the Inter3 nal Revenue Code of 1986.

4 ‘‘(2) SUMMARY DESCRIPTION.—The issuer of

5 any SAFE annuity shall provide to the employer

6 maintaining the annuity for each year a description

7 containing the following information:

8 ‘‘(A) The name and address of the em9 ployer and the issuer.

10 ‘‘(B) The requirements for eligibility for

11 participation.

12 ‘‘(C) The benefits provided with respect to

13 the annuity.

14 ‘‘(D) The procedures for, and effects of,

15 withdrawals (including rollovers) from the an16 nuity.

17 ‘‘(3) EMPLOYEE NOTIFICATION.—The employer

18 shall provide each employee eligible to participate in

19 the SAFE annuity with the description described in

20 paragraph (2) at the same time as the notification

21 required under section 408B(b)(5)(B) of the Inter22 nal Revenue Code of 1986.’’

23 (3) WAIVER OF FUNDING STANDARDS.—Section

24 301(a) of such Act (29 U.S.C. 1081) is amended by

25 striking ‘‘or’’ at the end of paragraph (9), by strik-
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1 ing the period at the end of paragraph (10) and in2 serting ‘‘; or’’, and by adding at the end the fol3 lowing new paragraph:

4 ‘‘(11) any plan providing for the purchase of

5 any SAFE annuity or any SAFE trust (as such

6 terms are defined in section 408B of such Code).’’

7 (h) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to years beginning after December

9 31, 2000.

10 SEC. 319. MODIFICATION OF TOP-HEAVY RULES.

11 (a) MATCHING CONTRIBUTIONS TAKEN INTO AC12 COUNT FOR MINIMUM CONTRIBUTION REQUIREMENTS.—

13 Section 416(c)(2)(A) (relating to defined contribution

14 plans) is amended by adding at the end the following:

15 ‘‘Employer matching contributions (as defined in section

16 401(m)(4)(A)) shall be taken into account for purposes

17 of this subparagraph.’’.

18 (b) ELIMINATION OF FAMILY ATTRIBUTION.—Sec19 tion 416(i)(1)(B) (defining 5-percent owner) is amended

20 by adding at the end the following new clause:

21 ‘‘(iv) FAMILY ATTRIBUTION DIS22 REGARDED.—Solely for purposes of apply23 ing this paragraph (and not for purposes

24 of any provision of this title which incor25 porates by reference the definition of a key
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1 employee or 5-percent owner under this

2 paragraph), section 318 shall be applied

3 without regard to subsection (a)(1) thereof

4 in determining whether any person is a 5-

5 percent owner.’’

6 (c) DEFINITION OF TOP-HEAVY PLANS.—Paragraph

7 (4) of section 416(g) (relating to other special rules for

8 top-heavy plans) is amended by adding at the end the fol9 lowing new subparagraph:

10 ‘‘(H) CASH OR DEFERRED ARRANGEMENTS

11 USING ALTERNATIVE METHODS OF MEETING

12 NONDISCRIMINATION REQUIREMENTS.—The

13 term ‘top-heavy plan’ shall not include a plan

14 which consists solely of—

15 ‘‘(i) a cash or deferred arrangement

16 which meets the requirements of section

17 401(k)(12), and

18 ‘‘(ii) matching contributions with re19 spect to which the requirements of section

20 401(m)(11) are met.

21 If, but for this subparagraph, a plan would be

22 treated as a top-heavy plan because it is a

23 member of an aggregation group which is a top24 heavy group, contributions under the plan may

25 be taken into account in determining whether
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1 any other plan in the group meets the require2 ments of subsection (c)(2).’’

3 (d) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to plan years beginning after De5 cember 31, 2000.

6 Subtitle C—Enhancing Fairness for

7 Women

8 SEC. 321. CATCHUP CONTRIBUTIONS FOR INDIVIDUALS

9 AGE 50 OR OVER.

10 (a) ELECTIVE DEFERRALS.—Section 414 (relating to

11 definitions and special rules) is amended by adding at the

12 end the following new subsection:

13 ‘‘(v) CATCHUP CONTRIBUTIONS FOR INDIVIDUALS

14 AGE 50 OR OVER.—

15 ‘‘(1) IN GENERAL.—An applicable employer

16 plan shall not be treated as failing to meet any re17 quirement of this title solely because the plan per18 mits an eligible participant to make additional elec19 tive deferrals in any plan year.

20 ‘‘(2) LIMITATION ON AMOUNT OF ADDITIONAL

21 DEFERRALS.—

22 ‘‘(A) IN GENERAL.—A plan shall not per23 mit additional elective deferrals under para24 graph (1) for any year in an amount greater

25 than the lesser of—
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1 ‘‘(i) the applicable percentage of the

2 applicable dollar amount for such elective

3 deferrals for such year, or

4 ‘‘(ii) the excess (if any) of—

5 ‘‘(I) the participant’s compensa6 tion for the year, over

7 ‘‘(II) any other elective deferrals

8 of the participant for such year which

9 are made without regard to this sub10 section.

11 ‘‘(B) APPLICABLE PERCENTAGE.—For

12 purposes of this paragraph, the applicable per13 centage shall be determined in accordance with

14 the following table:

‘‘For taxable years The applicable

beginning in: percentage is:

2001 ......................................................................................... 10 percent

2002 ......................................................................................... 20 percent

2003 ......................................................................................... 30 percent

2004 ......................................................................................... 40 percent

2005 and thereafter ................................................................. 50 percent.

15 ‘‘(3) TREATMENT OF CONTRIBUTIONS.—In the

16 case of any contribution to a plan under paragraph

17 (1)—

18 ‘‘(A) such contribution shall not, with re19 spect to the year in which the contribution is

20 made—

21 ‘‘(i) be subject to any otherwise appli22 cable limitation contained in section
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1 402(g), 402(h), 403(b), 404(a), 404(h),

2 408, 415, or 457, or

3 ‘‘(ii) be taken into account in applying

4 such limitations to other contributions or

5 benefits under such plan or any other such

6 plan, and

7 ‘‘(B) such plan shall not be treated as fail8 ing to meet the requirements of section

9 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),

10 401(k)(12), 401(m), 403(b)(12), 408(k),

11 408(p), 408B, 410(b), or 416 by reason of the

12 making of (or the right to make) such contribu13 tion.

14 ‘‘(4) ELIGIBLE PARTICIPANT.—For purposes of

15 this subsection, the term ‘eligible participant’ means,

16 with respect to any plan year, a participant in a

17 plan—

18 ‘‘(A) who has attained the age of 50 before

19 the close of the plan year, and

20 ‘‘(B) with respect to whom no other elec21 tive deferrals may (without regard to this sub22 section) be made to the plan for the plan year

23 by reason of the application of any limitation or

24 other restriction described in paragraph (3) or

25 contained in the terms of the plan.
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1 ‘‘(5) OTHER DEFINITIONS AND RULES.—For

2 purposes of this subsection—

3 ‘‘(A) APPLICABLE DOLLAR AMOUNT.—The

4 term ‘applicable dollar amount’ means, with re5 spect to any year, the amount in effect under

6 section 402(g)(1)(B), 408(p)(2)(E)(i), or

7 457(e)(15)(A), whichever is applicable to an ap8 plicable employer plan, for such year.

9 ‘‘(B) APPLICABLE EMPLOYER PLAN.—The

10 term ‘applicable employer plan’ means—

11 ‘‘(i) an employees’ trust described in

12 section 401(a) which is exempt from tax

13 under section 501(a),

14 ‘‘(ii) a plan under which amounts are

15 contributed by an individual’s employer for

16 an annuity contract described in section

17 403(b),

18 ‘‘(iii) an eligible deferred compensa19 tion plan under section 457 of an eligible

20 employer as defined in section

21 457(e)(1)(A), and

22 ‘‘(iv) an arrangement meeting the re23 quirements of section 408 (k) or (p).
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1 ‘‘(C) ELECTIVE DEFERRAL.—The term

2 ‘elective deferral’ has the meaning given such

3 term by subsection (u)(2)(C).

4 ‘‘(D) EXCEPTION FOR SECTION 457

5 PLANS.—This subsection shall not apply to an

6 applicable employer plan described in paragraph

7 (5)(B)(iii) for any year to which section

8 457(b)(3) applies.’’

9 (b) INDIVIDUAL RETIREMENT PLANS.—Section

10 219(b), as amended by sections 301 and 318, is amended

11 by adding at the end the following new paragraph:

12 ‘‘(7) CATCHUP CONTRIBUTIONS.—

13 ‘‘(A) IN GENERAL.—In the case of an indi14 vidual who has attained the age of 50 before

15 the close of the taxable year, the dollar amount

16 in effect under paragraph (1)(A) for such tax17 able year shall be equal to the applicable per18 centage of such amount determined without re19 gard to this paragraph.

20 ‘‘(B) APPLICABLE PERCENTAGE.—For

21 purposes of this paragraph, the applicable per22 centage shall be determined in accordance with

23 the following table:

‘‘For taxable years The applicable

beginning in: percentage is:

2001 ......................................................................................... 110 percent

2002 ......................................................................................... 120 percent

2003 ......................................................................................... 130 percent
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‘‘For taxable years The applicable

beginning in: percentage is:

2004 ......................................................................................... 140 percent

2005 and thereafter ................................................................. 150 percent.’’

1 (c) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to contributions in taxable years

3 beginning after December 31, 2000.

4 SEC. 322. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF

5 EMPLOYEES TO DEFINED CONTRIBUTION

6 PLANS.

7 (a) EQUITABLE TREATMENT.—

8 (1) IN GENERAL.—Subparagraph (B) of section

9 415(c)(1) (relating to limitation for defined con10 tribution plans) is amended by striking ‘‘25 percent’’

11 and inserting ‘‘100 percent’’.

12 (2) APPLICATION TO SECTION 403(b).—Section

13 403(b) is amended—

14 (A) by striking ‘‘the exclusion allowance

15 for such taxable year’’ in paragraph (1) and in16 serting ‘‘the applicable limit under section

17 415’’,

18 (B) by striking paragraph (2), and

19 (C) by inserting ‘‘or any amount received

20 by a former employee after the 5th taxable year

21 following the taxable year in which such em22 ployee was terminated’’ before the period at the

23 end of the second sentence of paragraph (3).
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1 (3) CONFORMING AMENDMENTS.—

2 (A) Subsection (f) of section 72 is amend3 ed by striking ‘‘section 403(b)(2)(D)(iii))’’ and

4 inserting ‘‘section 403(b)(2)(D)(iii), as in effect

5 before the enactment of the Taxpayer Refund

6 Act of 1999)’’.

7 (B) Section 404(a)(10)(B) is amended by

8 striking ‘‘, the exclusion allowance under sec9 tion 403(b)(2),’’.

10 (C) Section 415(a)(2) is amended by strik11 ing ‘‘, and the amount of the contribution for

12 such portion shall reduce the exclusion allow13 ance as provided in section 403(b)(2)’’.

14 (D) Section 415(c)(3) is amended by add15 ing at the end the following new subparagraph:

16 ‘‘(E) ANNUITY CONTRACTS.—In the case

17 of an annuity contract described in section

18 403(b), the term ‘participant’s compensation’

19 means the participant’s includible compensation

20 determined under section 403(b)(3).’’

21 (E) Section 415(c) is amended by striking

22 paragraph (4).

23 (F) Section 415(c)(7) is amended to read

24 as follows:
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1 ‘‘(7) CERTAIN CONTRIBUTIONS BY CHURCH

2 PLANS NOT TREATED AS EXCEEDING LIMIT.—

3 ‘‘(A) IN GENERAL.—Notwithstanding any

4 other provision of this subsection, at the elec5 tion of a participant who is an employee of a

6 church or a convention or association of church7 es, including an organization described in sec8 tion 414(e)(3)(B)(ii), contributions and other

9 additions for an annuity contract or retirement

10 income account described in section 403(b) with

11 respect to such participant, when expressed as

12 an annual addition to such participant’s ac13 count, shall be treated as not exceeding the lim14 itation of paragraph (1) if such annual addition

15 is not in excess of $10,000.

16 ‘‘(B) $40,000 AGGREGATE LIMITATION.—

17 The total amount of additions with respect to

18 any participant which may be taken into ac19 count for purposes of this subparagraph for all

20 years may not exceed $40,000.

21 ‘‘(C) ANNUAL ADDITION.—For purposes of

22 this paragraph, the term ‘annual addition’ has

23 the meaning given such term by paragraph

24 (2).’’
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1 (G) Subparagraph (B) of section 402(g)(7)

2 (as redesignated by section 312(a)) is amended

3 by inserting before the period at the end the

4 following: ‘‘(as in effect before the enactment of

5 the Taxpayer Refund Act of 1999)’’.

6 (3) EFFECTIVE DATE.—The amendments made

7 by this subsection shall apply to years beginning

8 after December 31, 2000.

9 (b) SPECIAL RULES FOR SECTIONS 403(b) AND

10 408.—

11 (1) IN GENERAL.—Subsection (k) of section

12 415 is amended by adding at the end the following

13 new paragraph:

14 ‘‘(4) SPECIAL RULES FOR SECTIONS 403(b) AND

15 408.—For purposes of this section, any annuity con16 tract described in section 403(b) for the benefit of

17 a participant shall be treated as a defined contribu18 tion plan maintained by each employer with respect

19 to which the participant has the control required

20 under subsection (b) or (c) of section 414 (as modi21 fied by subsection (h)). For purposes of this section,

22 any contribution by an employer to a simplified em23 ployee pension plan for an individual for a taxable

24 year shall be treated as an employer contribution to
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1 a defined contribution plan for such individual for

2 such year.’’

3 (2) EFFECTIVE DATE.—The amendments made

4 by paragraph (1) shall apply to limitation years be5 ginning after December 31, 2000.

6 (c) DEFERRED COMPENSATION PLANS OF STATE

7 AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI8 ZATIONS.—

9 (1) IN GENERAL.—Subparagraph (B) of section

10 457(b)(2) (relating to salary limitation on eligible

11 deferred compensation plans) is amended by striking

‘‘331 12 ⁄3 percent’’ and inserting ‘‘100 percent’’.

13 (2) EFFECTIVE DATE.—The amendment made

14 by this subsection shall apply to years beginning

15 after December 31, 2000.

16 SEC. 323. CLARIFICATION OF TAX TREATMENT OF DIVISION

17 OF SECTION 457 PLAN BENEFITS UPON DI18 VORCE.

19 (a) IN GENERAL.—Section 414(p)(11) (relating to

20 application of rules to governmental and church plans) is

21 amended—

22 (1) by inserting ‘‘or an eligible deferred com23 pensation plan (within the meaning of section

24 457(b))’’ after ‘‘subsection (e))’’, and
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1 (2) in the heading, by striking ‘‘GOVERN2 MENTAL AND CHURCH PLANS’’ and inserting ‘‘CER3 TAIN OTHER PLANS’’.

4 (b) WAIVER OF CERTAIN DISTRIBUTION REQUIRE5 MENTS.—Paragraph (10) of section 414(p) is amended by

6 striking ‘‘and section 409(d)’’ and inserting ‘‘section

7 409(d), and section 457(d)’’.

8 (c) TAX TREATMENT OF PAYMENTS FROM A SEC9 TION 457 PLAN.—Subsection (p) of section 414 is amend10 ed by redesignating paragraph (12) as paragraph (13) and

11 inserting after paragraph (11) the following new para12 graph:

13 ‘‘(12) TAX TREATMENT OF PAYMENTS FROM A

14 SECTION 457 PLAN.—If a distribution or payment

15 from an eligible deferred compensation plan de16 scribed in section 457(b) is made pursuant to a

17 qualified domestic relations order, rules similar to

18 the rules of section 402(e)(1)(A) shall apply to such

19 distribution or payment.’’

20 (d) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to transfers, distributions, and

22 payments made after December 31, 2000.
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1 SEC. 324. MODIFICATION OF SAFE HARBOR RELIEF FOR

2 HARDSHIP WITHDRAWALS FROM CASH OR

3 DEFERRED ARRANGEMENTS.

4 (a) IN GENERAL.—The Secretary of the Treasury

5 shall revise the regulations relating to hardship distribu6 tions under section 401(k)(2)(B)(i)(IV) of the Internal

7 Revenue Code of 1986 to provide that the period an em8 ployee is prohibited from making elective and employee

9 contributions in order for a distribution to be deemed nec10 essary to satisfy financial need shall be equal to 6 months.

11 (b) EFFECTIVE DATE.—The revised regulations

12 under subsection (a) shall apply to years beginning after

13 December 31, 2000.

14 SEC. 325. FASTER VESTING OF CERTAIN EMPLOYER

15 MATCHING CONTRIBUTIONS.

16 (a) AMENDMENTS TO 1986 CODE.—Section 411(a)

17 (relating to minimum vesting standards) is amended—

18 (1) in paragraph (2), by striking ‘‘A plan’’ and

19 inserting ‘‘Except as provided in paragraph (12), a

20 plan’’, and

21 (2) by adding at the end the following:

22 ‘‘(12) FASTER VESTING FOR MATCHING CON23 TRIBUTIONS.—In the case of matching contributions

24 (as defined in section 401(m)(4)(A)), paragraph (2)

25 shall be applied—
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1 ‘‘(A) by substituting ‘3 years’ for ‘5 years’

2 in subparagraph (A), and

3 ‘‘(B) by substituting the following table for

4 the table contained in subparagraph (B):

The nonforfeitable

‘‘Years of service: percentage is:

2 ............................................................................................... 20

3 ............................................................................................... 40

4 ............................................................................................... 60

5 ............................................................................................... 80

6 ............................................................................................... 100.’’

5 (b) AMENDMENTS TO ERISA.—Section 203(a) of the

6 Employee Retirement Income Security Act of 1974 (29

7 U.S.C. 1053(a)) is amended—

8 (1) in paragraph (2), by striking ‘‘A plan’’ and

9 inserting ‘‘Except as provided in paragraph (4), a

10 plan’’, and

11 (2) by adding at the end the following:

12 ‘‘(4) FASTER VESTING FOR MATCHING CON13 TRIBUTIONS.—In the case of matching contributions

14 (as defined in section 401(m)(4)(A) of the Internal

15 Revenue Code of 1986), paragraph (2) shall be

16 applied—

17 ‘‘(A) by substituting ‘3 years’ for ‘5 years’

18 in subparagraph (A), and

19 ‘‘(B) by substituting the following table for

20 the table contained in subparagraph (B):

The nonforfeitable

‘‘Years of service: percentage is:

2 ............................................................................................... 20

3 ............................................................................................... 40
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The nonforfeitable

‘‘Years of service: percentage is:

4 ............................................................................................... 60

5 ............................................................................................... 80

6 ............................................................................................... 100.’’

1 (c) EFFECTIVE DATES.—

2 (1) IN GENERAL.—Except as provided in para3 graph (2), the amendments made by this section

4 shall apply to contributions for plan years beginning

5 after December 31, 2000.

6 (2) COLLECTIVE BARGAINING AGREEMENTS.—

7 In the case of a plan maintained pursuant to 1 or

8 more collective bargaining agreements between em9 ployee representatives and 1 or more employers rati10 fied by the date of enactment of this Act, the

11 amendments made by this section shall not apply to

12 contributions on behalf of employees covered by any

13 such agreement for plan years beginning before the

14 earlier of—

15 (A) the later of—

16 (i) the date on which the last of such

17 collective bargaining agreements termi18 nates (determined without regard to any

19 extension thereof on or after such date of

20 enactment), or

21 (ii) January 1, 2001, or

22 (B) January 1, 2005.
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1 (3) SERVICE REQUIRED.—With respect to any

2 plan, the amendments made by this section shall not

3 apply to any employee before the date that such em4 ployee has 1 hour of service under such plan in any

5 plan year to which the amendments made by this

6 section apply.

7 Subtitle D—Increasing Portability

8 for Participants

9 SEC. 331. ROLLOVERS ALLOWED AMONG VARIOUS TYPES

10 OF PLANS.

11 (a) ROLLOVERS FROM AND TO SECTION 457

12 PLANS.—

13 (1) ROLLOVERS FROM SECTION 457 PLANS.—

14 (A) IN GENERAL.—Section 457(e) (relat15 ing to other definitions and special rules) is

16 amended by adding at the end the following:

17 ‘‘(16) ROLLOVER AMOUNTS.—

18 ‘‘(A) GENERAL RULE.—In the case of an

19 eligible deferred compensation plan established

20 and maintained by an employer described in

21 subsection (e)(1)(A), if—

22 ‘‘(i) any portion of the balance to the

23 credit of an employee in such plan is paid

24 to such employee in an eligible rollover dis25 tribution (within the meaning of section
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1 402(c)(4) without regard to subparagraph

2 (C) thereof),

3 ‘‘(ii) the employee transfers any por4 tion of the property such employee receives

5 in such distribution to an eligible retire6 ment plan described in section

7 402(c)(8)(B), and

8 ‘‘(iii) in the case of a distribution of

9 property other than money, the amount so

10 transferred consists of the property distrib11 uted,

12 then such distribution (to the extent so trans13 ferred) shall not be includible in gross income

14 for the taxable year in which paid.

15 ‘‘(B) CERTAIN RULES MADE APPLICA16 BLE.—The rules of paragraphs (2) through (7)

17 (other than paragraph (4)(C)) and (9) of sec18 tion 402(c) and section 402(f) shall apply for

19 purposes of subparagraph (A).

20 ‘‘(C) REPORTING.—Rollovers under this

21 paragraph shall be reported to the Secretary in

22 the same manner as rollovers from qualified re23 tirement plans (as defined in section 4974(c)).’’

24 (B) DEFERRAL LIMIT DETERMINED WITH25 OUT REGARD TO ROLLOVER AMOUNTS.—Section
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1 457(b)(2) (defining eligible deferred compensa2 tion plan) is amended by inserting ‘‘(other than

3 rollover amounts)’’ after ‘‘taxable year’’.

4 (C) DIRECT ROLLOVER.—Paragraph (1) of

5 section 457(d) is amended by striking ‘‘and’’ at

6 the end of subparagraph (A), by striking the

7 period at the end of subparagraph (B) and in8 serting ‘‘, and’’, and by inserting after subpara9 graph (B) the following:

10 ‘‘(C) in the case of a plan maintained by

11 an employer described in subsection (e)(1)(A),

12 the plan meets requirements similar to the re13 quirements of section 401(a)(31).

14 Any amount transferred in a direct trustee-to-trust15 ee transfer in accordance with section 401(a)(31)

16 shall not be includible in gross income for the tax17 able year of transfer.’’

18 (D) WITHHOLDING.—

19 (i) Paragraph (12) of section 3401(a)

20 is amended by adding at the end the fol21 lowing:

22 ‘‘(E) under or to an eligible deferred com23 pensation plan which, at the time of such pay24 ment, is a plan described in section 457(b)
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1 maintained by an employer described in section

2 457(e)(1)(A); or’’.

3 (ii) Paragraph (3) of section 3405(c)

4 is amended to read as follows:

5 ‘‘(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For

6 purposes of this subsection, the term ‘eligible roll7 over distribution’ has the meaning given such term

8 by section 402(f)(2)(A).’’

9 (iii) LIABILITY FOR WITHHOLDING.—

10 Subparagraph (B) of section 3405(d)(2) is

11 amended by striking ‘‘or’’ at the end of

12 clause (ii), by striking the period at the

13 end of clause (iii) and inserting ‘‘, or’’, and

14 by adding at the end the following:

15 ‘‘(iv) section 457(b).’’

16 (2) ROLLOVERS TO SECTION 457 PLANS.—

17 (A) IN GENERAL.—Section 402(c)(8)(B)

18 (defining eligible retirement plan) is amended

19 by striking ‘‘and’’ at the end of clause (iii), by

20 striking the period at the end of clause (iv) and

21 inserting ‘‘, and’’, and by inserting after clause

22 (iv) the following new clause:

23 ‘‘(v) an eligible deferred compensation

24 plan described in section 457(b) of an em25 ployer described in section 457(e)(1)(A).’’
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1 (B) SEPARATE ACCOUNTING.—Section

2 402(c) is amended by adding at the end the fol3 lowing new paragraph:

4 ‘‘(11) SEPARATE ACCOUNTING.—Unless a plan

5 described in clause (v) of paragraph (8)(B) agrees to

6 separately account for amounts rolled into such plan

7 from eligible retirement plans not described in such

8 clause, the plan described in such clause may not ac9 cept transfers or rollovers from such retirement

10 plans.’’

11 (C) 10 PERCENT ADDITIONAL TAX.—Sub12 section (t) of section 72 (relating to 10-percent

13 additional tax on early distributions from quali14 fied retirement plans) is amended by adding at

15 the end the following new paragraph:

16 ‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SEC17 TION 457 PLANS.—For purposes of this subsection,

18 a distribution from an eligible deferred compensation

19 plan (as defined in section 457(b)) of an employer

20 described in section 457(e)(1)(A) shall be treated as

21 a distribution from a qualified retirement plan de22 scribed in 4974(c)(1) to the extent that such dis23 tribution is attributable to an amount transferred to

24 an eligible deferred compensation plan from a quali-
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1 fied retirement plan (as defined in section

2 4974(c)).’’

3 (b) ALLOWANCE OF ROLLOVERS FROM AND TO

4 403(b) PLANS.—

5 (1) ROLLOVERS FROM SECTION 403(b)

6 PLANS.—Section 403(b)(8)(A)(ii) (relating to roll7 over amounts) is amended by striking ‘‘such dis8 tribution’’ and all that follows and inserting ‘‘such

9 distribution to an eligible retirement plan described

10 in section 402(c)(8)(B), and’’.

11 (2) ROLLOVERS TO SECTION 403(b) PLANS.—

12 Section 402(c)(8)(B) (defining eligible retirement

13 plan), as amended by subsection (a), is amended by

14 striking ‘‘and’’ at the end of clause (iv), by striking

15 the period at the end of clause (v) and inserting

16 ‘‘, and’’, and by inserting after clause (v) the fol17 lowing new clause:

18 ‘‘(vi) an annuity contract described in

19 section 403(b).’’

20 (c) EXPANDED EXPLANATION TO RECIPIENTS OF

21 ROLLOVER DISTRIBUTIONS.—Paragraph (1) of section

22 402(f) (relating to written explanation to recipients of dis23 tributions eligible for rollover treatment) is amended by

24 striking ‘‘and’’ at the end of subparagraph (C), by striking

25 the period at the end of subparagraph (D) and inserting
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1 ‘‘, and’’, and by adding at the end the following new sub2 paragraph:

3 ‘‘(E) of the provisions under which dis4 tributions from the eligible retirement plan re5 ceiving the distribution may be subject to re6 strictions and tax consequences which are dif7 ferent from those applicable to distributions

8 from the plan making such distribution.’’

9 (d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relat10 ing to rollover where spouse receives distribution after

11 death of employee) is amended by striking ‘‘; except that’’

12 and all that follows up to the end period.

13 (e) CONFORMING AMENDMENTS.—

14 (1) Section 72(o)(4) is amended by striking

15 ‘‘and 408(d)(3)’’ and inserting ‘‘403(b)(8),

16 408(d)(3), and 457(e)(16)’’.

17 (2) Section 219(d)(2) is amended by striking

18 ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or

19 457(e)(16)’’.

20 (3) Section 401(a)(31)(B) is amended by strik21 ing ‘‘and 403(a)(4)’’ and inserting ‘‘, 403(a)(4),

22 403(b)(8), and 457(e)(16)’’.

23 (4) Subparagraph (A) of section 402(f)(2) is

24 amended by striking ‘‘or paragraph (4) of section

25 403(a)’’ and inserting ‘‘, paragraph (4) of section
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1 403(a), subparagraph (A) of section 403(b)(8), or

2 subparagraph (A) of section 457(e)(16)’’.

3 (5) Paragraph (1) of section 402(f) is amended

4 by striking ‘‘from an eligible retirement plan’’.

5 (6) Subparagraphs (A) and (B) of section

6 402(f)(1) are amended by striking ‘‘another eligible

7 retirement plan’’ and inserting ‘‘an eligible retire8 ment plan’’.

9 (7) Subparagraph (B) of section 403(b)(8) is

10 amended to read as follows:

11 ‘‘(B) CERTAIN RULES MADE APPLICA12 BLE.—The rules of paragraphs (2) through (7)

13 and (9) of section 402(c) and section 402(f)

14 shall apply for purposes of subparagraph (A),

15 except that section 402(f) shall be applied to

16 the payor in lieu of the plan administrator.’’

17 (8) Section 408(a)(1) is amended by striking

18 ‘‘or 403(b)(8)’’ and inserting ‘‘, 403(b)(8), or

19 457(e)(16)’’.

20 (9) Subparagraphs (A) and (B) of section

21 415(b)(2) are each amended by striking ‘‘and

22 408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and

23 457(e)(16)’’.
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1 (10) Section 415(c)(2) is amended by striking

2 ‘‘and 408(d)(3)’’ and inserting ‘‘408(d)(3), and

3 457(e)(16)’’.

4 (11) Section 4973(b)(1)(A) is amended by

5 striking ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or

6 457(e)(16)’’.

7 (f) EFFECTIVE DATE; SPECIAL RULE.—

8 (1) EFFECTIVE DATE.—The amendments made

9 by this section shall apply to distributions after De10 cember 31, 2000.

11 (2) SPECIAL RULE.—Notwithstanding any other

12 provision of law, subsections (h)(3) and (h)(5) of

13 section 1122 of the Tax Reform Act of 1986 shall

14 not apply to any distribution from an eligible retire15 ment plan (as defined in clause (iii) or (iv) of section

16 402(c)(8)(B) of the Internal Revenue Code of 1986)

17 on behalf of an individual if there was a rollover to

18 such plan on behalf of such individual which is per19 mitted solely by reason of any amendment made by

20 this section.

21 SEC. 332. ROLLOVERS OF IRAS INTO WORKPLACE RETIRE22 MENT PLANS.

23 (a) IN GENERAL.—Subparagraph (A) of section

24 408(d)(3) (relating to rollover amounts) is amended by
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1 adding ‘‘or’’ at the end of clause (i), by striking clauses

2 (ii) and (iii), and by adding at the end the following:

3 ‘‘(ii) the entire amount received (in4 cluding money and any other property) is

5 paid into an eligible retirement plan for

6 the benefit of such individual not later

7 than the 60th day after the date on which

8 the payment or distribution is received, ex9 cept that the maximum amount which may

10 be paid into such plan may not exceed the

11 portion of the amount received which is in12 cludible in gross income (determined with13 out regard to this paragraph).

14 For purposes of clause (ii), the term ‘eligible re15 tirement plan’ means an eligible retirement plan

16 described in clause (iii), (iv), (v), or (vi) of sec17 tion 402(c)(8)(B).’’

18 (b) CONFORMING AMENDMENTS.—

19 (1) Paragraph (1) of section 403(b) is amended

20 by striking ‘‘section 408(d)(3)(A)(iii)’’ and inserting

21 ‘‘section 408(d)(3)(A)(ii)’’.

22 (2) Clause (i) of section 408(d)(3)(D) is amend23 ed by striking ‘‘(i), (ii), or (iii)’’ and inserting ‘‘(i)

24 or (ii)’’.
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1 (3) Subparagraph (G) of section 408(d)(3) is

2 amended to read as follows:

3 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In

4 the case of any payment or distribution out of

5 a simple retirement account (as defined in sub6 section (p)) to which section 72(t)(6) applies,

7 this paragraph shall not apply unless such pay8 ment or distribution is paid into another simple

9 retirement account.’’

10 (c) EFFECTIVE DATE; SPECIAL RULE.—

11 (1) EFFECTIVE DATE.—The amendments made

12 by this section shall apply to distributions after De13 cember 31, 2000.

14 (2) SPECIAL RULE.—Notwithstanding any other

15 provision of law, subsections (h)(3) and (h)(5) of

16 section 1122 of the Tax Reform Act of 1986 shall

17 not apply to any distribution from an eligible retire18 ment plan (as defined in clause (iii) or (iv) of section

19 402(c)(8)(B) of the Internal Revenue Code of 1986)

20 on behalf of an individual if there was a rollover to

21 such plan on behalf of such individual which is per22 mitted solely by reason of the amendments made by

23 this section.
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1 SEC. 333. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

2 (a) ROLLOVERS FROM EXEMPT TRUSTS.—Para3 graph (2) of section 402(c) (relating to maximum amount

4 which may be rolled over) is amended by adding at the

5 end the following: ‘‘The preceding sentence shall not apply

6 to such distribution to the extent—

7 ‘‘(A) such portion is transferred in a direct

8 trustee-to-trustee transfer to a qualified trust

9 which is part of a plan which is a defined con10 tribution plan and which agrees to separately

11 account for amounts so transferred, including

12 separately accounting for the portion of such

13 distribution which is includible in gross income

14 and the portion of such distribution which is

15 not so includible, or

16 ‘‘(B) such portion is transferred to an eli17 gible retirement plan described in clause (i) or

18 (ii) of paragraph (8)(B).’’

19 (b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE

20 ROLLOVER DISTRIBUTIONS.—Subparagraph (B) of sec21 tion 401(a)(31) (relating to limitation) is amended by add22 ing at the end the following: ‘‘The preceding sentence shall

23 not apply to such distribution if the plan to which such

24 distribution is transferred—

25 ‘‘(i) agrees to separately account for

26 amounts so transferred, including sepa-
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1 rately accounting for the portion of such

2 distribution which is includible in gross in3 come and the portion of such distribution

4 which is not so includible, or

5 ‘‘(ii) is an eligible retirement plan de6 scribed in clause (i) or (ii) of section

7 402(c)(8)(B).’’

8 (c) RULES FOR APPLYING SECTION 72 TO IRAS.—

9 Paragraph (3) of section 408(d) (relating to special rules

10 for applying section 72) is amended by inserting at the

11 end the following:

12 ‘‘(H) APPLICATION OF SECTION 72.—

13 ‘‘(i) IN GENERAL.—If—

14 ‘‘(I) a distribution is made from

15 an individual retirement plan, and

16 ‘‘(II) a rollover contribution is

17 made to an eligible retirement plan

18 described in section 402(c)(8)(B)(iii),

19 (iv), (v), or (vi) with respect to all or

20 part of such distribution,

21 then, notwithstanding paragraph (2), the

22 rules of clause (ii) shall apply for purposes

23 of applying section 72.
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1 ‘‘(ii) APPLICABLE RULES.—In the

2 case of a distribution described in clause

3 (i)—

4 ‘‘(I) section 72 shall be applied

5 separately to such distribution,

6 ‘‘(II) notwithstanding the pro

7 rata allocation of income on, and in8 vestment in the contract, to distribu9 tions under section 72, the portion of

10 such distribution rolled over to an eli11 gible retirement plan described in

12 clause (i) shall be treated as from in13 come on the contract (to the extent of

14 the aggregate income on the contract

15 from all individual retirement plans of

16 the distributee), and

17 ‘‘(III) appropriate adjustments

18 shall be made in applying section 72

19 to other distributions in such taxable

20 year and subsequent taxable years.’’

21 (d) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to distributions made after Decem23 ber 31, 2000.
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1 SEC. 334. HARDSHIP EXCEPTION TO 60-DAY RULE.

2 (a) EXEMPT TRUSTS.—Paragraph (3) of section

3 402(c) (relating to transfer must be made within 60 days

4 of receipt) is amended to read as follows:

5 ‘‘(3) TRANSFER MUST BE MADE WITHIN 60

6 DAYS OF RECEIPT.—

7 ‘‘(A) IN GENERAL.—Except as provided in

8 subparagraph (B), paragraph (1) shall not

9 apply to any transfer of a distribution made

10 after the 60th day following the day on which

11 the distributee received the property distrib12 uted.

13 ‘‘(B) HARDSHIP EXCEPTION.—The Sec14 retary may waive the 60-day requirement under

15 subparagraph (A) where the failure to waive

16 such requirement would be against equity or

17 good conscience, including casualty, disaster, or

18 other events beyond the reasonable control of

19 the individual subject to such requirement.’’

20 (b) IRAS.—Paragraph (3) of section 408(d) (relating

21 to rollover contributions), as amended by section 333, is

22 amended by adding after subparagraph (H) the following

23 new subparagraph:

24 ‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—

25 The Secretary may waive the 60-day require26 ment under subparagraphs (A) and (D) where
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1 the failure to waive such requirement would be

2 against equity or good conscience, including

3 casualty, disaster, or other events beyond the

4 reasonable control of the individual subject to

5 such requirement.’’

6 (c) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to distributions after December 31,

8 2000.

9 SEC. 335. TREATMENT OF FORMS OF DISTRIBUTION.

10 (a) PLAN TRANSFERS.—

11 (1) AMENDMENT TO INTERNAL REVENUE CODE

12 OF 1986.—Paragraph (6) of section 411(d) (relating

13 to accrued benefit not to be decreased by amend14 ment) is amended by adding at the end the fol15 lowing:

16 ‘‘(D) PLAN TRANSFERS.—

17 ‘‘(i) A defined contribution plan (in

18 this subparagraph referred to as the

19 ‘transferee plan’) shall not be treated as

20 failing to meet the requirements of this

21 subsection merely because the transferee

22 plan does not provide some or all of the

23 forms of distribution previously available

24 under another defined contribution plan
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1 (in this subparagraph referred to as the

2 ‘transferor plan’) to the extent that—

3 ‘‘(I) the forms of distribution

4 previously available under the trans5 feror plan applied to the account of a

6 participant or beneficiary under the

7 transferor plan that was transferred

8 from the transferor plan to the trans9 feree plan pursuant to a direct trans10 fer rather than pursuant to a distribu11 tion from the transferor plan,

12 ‘‘(II) the terms of both the trans13 feror plan and the transferee plan au14 thorize the transfer described in sub15 clause (I),

16 ‘‘(III) the transfer described in

17 subclause (I) was made pursuant to a

18 voluntary election by the participant

19 or beneficiary whose account was

20 transferred to the transferee plan,

21 ‘‘(IV) the election described in

22 subclause (III) was made after the

23 participant or beneficiary received a

24 notice describing the consequences of

25 making the election,
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1 ‘‘(V) if the transferor plan pro2 vides for an annuity as the normal

3 form of distribution under the plan in

4 accordance with section 417, the

5 transfer is made with the consent of

6 the participant’s spouse (if any), and

7 such consent meets requirements simi8 lar to the requirements imposed by

9 section 417(a)(2), and

10 ‘‘(VI) the transferee plan allows

11 the participant or beneficiary de12 scribed in subclause (III) to receive

13 any distribution to which the partici14 pant or beneficiary is entitled under

15 the transferee plan in the form of a

16 single sum distribution.

17 ‘‘(ii) Clause (i) shall apply to plan

18 mergers and other transactions having the

19 effect of a direct transfer, including con20 solidations of benefits attributable to dif21 ferent employers within a multiple em22 ployer plan.

23 ‘‘(E) ELIMINATION OF FORM OF DISTRIBU24 TION.—Except to the extent provided in regula25 tions, a defined contribution plan shall not be
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1 treated as failing to meet the requirements of

2 this section merely because of the elimination of

3 a form of distribution previously available there4 under. This subparagraph shall not apply to the

5 elimination of a form of distribution with re6 spect to any participant unless—

7 ‘‘(i) a single sum payment is available

8 to such participant at the same time or

9 times as the form of distribution being

10 eliminated, and

11 ‘‘(ii) such single sum payment is

12 based on the same or greater portion of

13 the participant’s account as the form of

14 distribution being eliminated.’’

15 (2) AMENDMENT TO ERISA.—Section 204(g) of

16 the Employee Retirement Income Security Act of

17 1974 (29 U.S.C. 1054(g)) is amended by adding at

18 the end the following:

19 ‘‘(4)(A) A defined contribution plan (in this subpara20 graph referred to as the ‘transferee plan’) shall not be

21 treated as failing to meet the requirements of this sub22 section merely because the transferee plan does not pro23 vide some or all of the forms of distribution previously

24 available under another defined contribution plan (in this
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1 paragraph referred to as the ‘transferor plan’) to the ex2 tent that—

3 ‘‘(i) the forms of distribution previously avail4 able under the transferor plan applied to the account

5 of a participant or beneficiary under the transferor

6 plan that was transferred from the transferor plan

7 to the transferee plan pursuant to a direct transfer

8 rather than pursuant to a distribution from the

9 transferor plan;

10 ‘‘(ii) the terms of both the transferor plan and

11 the transferee plan authorize the transfer described

12 in clause (i);

13 ‘‘(iii) the transfer described in clause (i) was

14 made pursuant to a voluntary election by the partici15 pant or beneficiary whose account was transferred to

16 the transferee plan;

17 ‘‘(iv) the election described in clause (iii) was

18 made after the participant or beneficiary received a

19 notice describing the consequences of making the

20 election;

21 ‘‘(v) if the transferor plan provides for an annu22 ity as the normal form of distribution under the plan

23 in accordance with section 417, the transfer is made

24 with the consent of the participant’s spouse (if any),
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1 and such consent meets requirements similar to the

2 requirements imposed by section 417(a)(2); and

3 ‘‘(vi) the transferee plan allows the participant

4 or beneficiary described in subclause (III) to receive

5 any distribution to which the participant or bene6 ficiary is entitled under the transferee plan in the

7 form of a single sum distribution.

8 ‘‘(B) Subparagraph (A) shall apply to plan mergers

9 and other transactions having the effect of a direct trans10 fer, including consolidations of benefits attributable to dif11 ferent employers within a multiple employer plan.

12 ‘‘(5) ELIMINATION OF FORM OF DISTRIBUTION.—Ex13 cept to the extent provided in regulations, a defined con14 tribution plan shall not be treated as failing to meet the

15 requirements of this section merely because of the elimi16 nation of a form of distribution previously available there17 under. This paragraph shall not apply to the elimination

18 of a form of distribution with respect to any participant

19 unless—

20 ‘‘(A) a single sum payment is available to such

21 participant at the same time or times as the form

22 of distribution being eliminated; and

23 ‘‘(B) such single sum payment is based on the

24 same or greater portion of the participant’s account

25 as the form of distribution being eliminated.’’
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1 (3) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to years beginning

3 after December 31, 2000.

4 (b) REGULATIONS.—

5 (1) AMENDMENT TO INTERNAL REVENUE CODE

6 OF 1986.—The last sentence of paragraph (6)(B) of

7 section 411(d) (relating to accrued benefit not to be

8 decreased by amendment) is amended to read as fol9 lows: ‘‘The Secretary may by regulations provide

10 that this subparagraph shall not apply to any plan

11 amendment that does not adversely affect the rights

12 of participants in a material manner.’’

13 (2) AMENDMENT TO ERISA.—The last sentence

14 of section 204(g)(2) of the Employee Retirement In15 come Security Act of 1974 (29 U.S.C. 1054(g)(2))

16 is amended to read as follows: ‘‘The Secretary of the

17 Treasury may by regulations provide that this para18 graph shall not apply to any plan amendment that

19 does not adversely affect the rights of participants in

20 a material manner.’’

21 (3) SECRETARY DIRECTED.—Not later than

22 December 31, 2001, the Secretary of the Treasury

23 is directed to issue final regulations under section

24 411(d)(6) of the Internal Revenue Code of 1986 and

25 section 204(g)(2) of the Employee Retirement In-
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1 come Security Act of 1974. Such regulations shall

2 apply to plan years beginning after December 31,

3 2001, or such earlier date as is specified by the Sec4 retary of the Treasury.

5 SEC. 336. RATIONALIZATION OF RESTRICTIONS ON DIS6 TRIBUTIONS.

7 (a) MODIFICATION OF SAME DESK EXCEPTION.—

8 (1) SECTION 401(k).—

9 (A) Section 401(k)(2)(B)(i)(I) (relating to

10 qualified cash or deferred arrangements) is

11 amended by striking ‘‘separation from service’’

12 and inserting ‘‘severance from employment’’.

13 (B) Subparagraph (A) of section

14 401(k)(10) (relating to distributions upon ter15 mination of plan or disposition of assets or sub16 sidiary) is amended to read as follows:

17 ‘‘(A) IN GENERAL.—An event described in

18 this subparagraph is the termination of the

19 plan without establishment or maintenance of

20 another defined contribution plan (other than

21 an employee stock ownership plan as defined in

22 section 4975(e)(7)).’’

23 (C) Section 401(k)(10) is amended—

24 (i) in subparagraph (B)—
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1 (I) by striking ‘‘An event’’ in

2 clause (i) and inserting ‘‘A termi3 nation’’, and

4 (II) by striking ‘‘the event’’ in

5 clause (i) and inserting ‘‘the termi6 nation’’,

7 (ii) by striking subparagraph (C), and

8 (iii) by striking ‘‘OR DISPOSITION OF

9 ASSETS OR SUBSIDIARY’’ in the heading.

10 (2) SECTION 403(b).—

11 (A) Paragraphs (7)(A)(ii) and (11)(A) of

12 section 403(b) are each amended by striking

13 ‘‘separates from service’’ and inserting ‘‘has a

14 severance from employment’’.

15 (B) The heading for paragraph (11) of

16 section 403(b) is amended by striking ‘‘SEPARA17 TION FROM SERVICE’’ and inserting ‘‘SEVER18 ANCE FROM EMPLOYMENT’’.

19 (3) SECTION 457.—Clause (ii) of section

20 457(d)(1)(A) is amended by striking ‘‘is separated

21 from service’’ and inserting ‘‘has a severance from

22 employment’’.

23 (b) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to distributions after December 31,

25 2000.
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1 SEC. 337. PURCHASE OF SERVICE CREDIT IN GOVERN2 MENTAL DEFINED BENEFIT PLANS.

3 (a) 403(b) PLANS.—Subsection (b) of section 403 is

4 amended by adding at the end the following new para5 graph:

6 ‘‘(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO

7 PURCHASE PERMISSIVE SERVICE CREDIT.—No

8 amount shall be includible in gross income by reason

9 of a direct trustee-to-trustee transfer to a defined

10 benefit governmental plan (as defined in section

11 414(d)) if such transfer is—

12 ‘‘(A) for the purchase of permissive service

13 credit (as defined in section 415(n)(3)(A))

14 under such plan, or

15 ‘‘(B) a repayment to which section 415

16 does not apply by reason of subsection (k)(3)

17 thereof.’’

18 (b) 457 PLANS.—

19 (1) Subsection (e) of section 457 is amended by

20 adding after paragraph (17) the following new para21 graph:

22 ‘‘(18) TRUSTEE-TO-TRUSTEE TRANSFERS TO

23 PURCHASE PERMISSIVE SERVICE CREDIT.—No

24 amount shall be includible in gross income by reason

25 of a direct trustee-to-trustee transfer to a defined
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1 benefit governmental plan (as defined in section

2 414(d)) if such transfer is—

3 ‘‘(A) for the purchase of permissive service

4 credit (as defined in section 415(n)(3)(A))

5 under such plan, or

6 ‘‘(B) a repayment to which section 415

7 does not apply by reason of subsection (k)(3)

8 thereof.’’

9 (2) Section 457(b)(2) is amended by striking

10 ‘‘(other than rollover amounts)’’ and inserting

11 ‘‘(other than rollover amounts and amounts received

12 in a transfer referred to in subsection (e)(16))’’.

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to trustee-to-trustee transfers after

15 December 31, 2000.

16 SEC. 338. EMPLOYERS MAY DISREGARD ROLLOVERS FOR

17 PURPOSES OF CASH-OUT AMOUNTS.

18 (a) QUALIFIED PLANS.—

19 (1) AMENDMENT TO INTERNAL REVENUE CODE

20 OF 1986.—Section 411(a)(11) (relating to restric21 tions on certain mandatory distributions) is amended

22 by adding at the end the following:

23 ‘‘(D) SPECIAL RULE FOR ROLLOVER CON24 TRIBUTIONS.—A plan shall not fail to meet the

25 requirements of this paragraph if, under the
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1 terms of the plan, the present value of the non2 forfeitable accrued benefit is determined with3 out regard to that portion of such benefit which

4 is attributable to rollover contributions (and

5 earnings allocable thereto). For purposes of this

6 subparagraph, the term ‘rollover contributions’

7 means any rollover contribution under sections

8 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii),

9 and 457(e)(16).’’

10 (2) AMENDMENT TO ERISA.—Section 203(e) of

11 the Employee Retirement Income Security Act of

12 1974 (29 U.S.C. 1053(c)) is amended by adding at

13 the end the following:

14 ‘‘(4) A plan shall not fail to meet the requirements

15 of this subsection if, under the terms of the plan, the

16 present value of the nonforfeitable accrued benefit is de17 termined without regard to that portion of such benefit

18 which is attributable to rollover contributions (and earn19 ings allocable thereto). For purposes of this subparagraph,

20 the term ‘rollover contributions’ means any rollover con21 tribution under sections 402(c), 403(a)(4), 403(b)(8),

22 408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue

23 Code of 1986.’’

24 (b) ELIGIBLE DEFERRED COMPENSATION PLANS.—

25 Clause (i) of section 457(e)(9)(A) is amended by striking
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1 ‘‘such amount’’ and inserting ‘‘the portion of such amount

2 which is not attributable to rollover contributions (as de3 fined in section 411(a)(11)(D))’’.

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to distributions after December 31,

6 2000.

7 SEC. 339. INCLUSION REQUIREMENTS FOR SECTION 457

8 PLANS.

9 (a) YEAR OF INCLUSION.—Subsection (a) of section

10 457 (relating to year of inclusion in gross income) is

11 amended to read as follows:

12 ‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—

13 ‘‘(1) IN GENERAL.—Any amount of compensa14 tion deferred under an eligible deferred compensa15 tion plan, and any income attributable to the

16 amounts so deferred, shall be includible in gross in17 come only for the taxable year in which such com18 pensation or other income—

19 ‘‘(A) is paid to the participant or other

20 beneficiary, in the case of a plan of an eligible

21 employer described in subsection (e)(1)(A), and

22 ‘‘(B) is paid or otherwise made available to

23 the participant or other beneficiary, in the case

24 of a plan of an eligible employer described in

25 subsection (e)(1)(B).
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1 ‘‘(2) SPECIAL RULE FOR ROLLOVER

2 AMOUNTS.—To the extent provided in section

3 72(t)(9), section 72(t) shall apply to any amount in4 cludible in gross income under this subsection.’’

5 (b) CONFORMING AMENDMENT.—So much of para6 graph (9) of section 457(e) as precedes subparagraph (A)

7 is amended to read as follows:

8 ‘‘(9) BENEFITS OF TAX EXEMPT ORGANIZATION

9 PLANS NOT TREATED AS MADE AVAILABLE BY REA10 SON OF CERTAIN ELECTIONS, ETC.—In the case of

11 an eligible deferred compensation plan of an em12 ployer described in paragraph (1)(B)—’’.

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to distributions after December 31,

15 2000.

16 Subtitle E—Strengthening Pension

17 Security and Enforcement

18 SEC. 341. REPEAL OF 150 PERCENT OF CURRENT LIABILITY

19 FUNDING LIMIT.

20 (a) AMENDMENT TO INTERNAL REVENUE CODE OF

21 1986.—Section 412(c)(7) (relating to full-funding limita22 tion) is amended—

23 (1) by striking ‘‘the applicable percentage’’ in

24 subparagraph (A)(i)(I) and inserting ‘‘in the case of
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1 plan years beginning before January 1, 2004, the

2 applicable percentage’’, and

3 (2) by amending subparagraph (F) to read as

4 follows:

5 ‘‘(F) APPLICABLE PERCENTAGE.—For

6 purposes of subparagraph (A)(i)(I), the applica7 ble percentage shall be determined in accord8 ance with the following table:

‘‘In the case of any plan year The applicable

beginning in— percentage is—

2001 ............................................................................. 160

2002 ............................................................................. 165

2003 ............................................................................. 170.’’

9 (b) AMENDMENT TO ERISA.—Section 302(c)(7) of

10 the Employee Retirement Income Security Act of 1974

11 (29 U.S.C. 1082(c)(7)) is amended—

12 (1) by striking ‘‘the applicable percentage’’ in

13 subparagraph (A)(i)(I) and inserting ‘‘in the case of

14 plan years beginning before January 1, 2004, the

15 applicable percentage’’, and

16 (2) by amending subparagraph (F) to read as

17 follows:

18 ‘‘(F) APPLICABLE PERCENTAGE.—For

19 purposes of subparagraph (A)(i)(I), the applica20 ble percentage shall be determined in accord21 ance with the following table:

‘‘In the case of any plan year The applicable

beginning in— percentage is—

2001 ............................................................................. 160
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2002 ............................................................................. 165

2003 ............................................................................. 170.’’

1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to plan years beginning after De3 cember 31, 2000.

4 SEC. 342. EXTENSION OF MISSING PARTICIPANTS PRO5 GRAM TO MULTIEMPLOYER PLANS.

6 (a) IN GENERAL.—Section 4050 of the Employee Re7 tirement Income Security Act of 1974 (29 U.S.C. 1350)

8 is amended by redesignating subsection (c) as subsection

9 (d) and by inserting after subsection (b) the following:

10 ‘‘(c) MULTIEMPLOYER PLANS.—The corporation

11 shall prescribe rules similar to the rules in subsection (a)

12 for multiemployer plans covered by this title that termi13 nate under section 4041A.’’.

14 (b) CONFORMING AMENDMENT.—Section 206(f) of

15 the Employee Retirement Income Security Act of 1974

16 (29 U.S.C. 1056(f)) is amended by striking ‘‘the plan shall

17 provide that,’’.

18 (c) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to distributions made after final

20 regulations implementing subsection (c) of section 4050

21 of the Employee Retirement Income Security Act of 1974

22 (as added by subsection (a)) are prescribed.
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1 SEC. 343. EXCISE TAX RELIEF FOR SOUND PENSION FUND2 ING.

3 (a) IN GENERAL.—Subsection (c) of section 4972

4 (relating to nondeductible contributions) is amended by

5 adding at the end the following new paragraph:

6 ‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In

7 determining the amount of nondeductible contribu8 tions for any taxable year, an employer may elect for

9 such year not to take into account any contributions

10 to a defined benefit plan except to the extent that

11 such contributions exceed the full-funding limitation

12 (as defined in section 412(c)(7), determined without

13 regard to subparagraph (A)(i)(I) thereof). For pur14 poses of this paragraph, the deductible limits under

15 section 404(a)(7) shall first be applied to amounts

16 contributed to defined contribution plans and then

17 to amounts described in this paragraph. If an em18 ployer makes an election under this paragraph for a

19 taxable year, paragraph (6) shall not apply to such

20 employer for such taxable year.’’

21 (b) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to years beginning after December

23 31, 2000.
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1 SEC. 344. FAILURE TO PROVIDE NOTICE BY DEFINED BEN2 EFIT PLANS SIGNIFICANTLY REDUCING FU3 TURE BENEFIT ACCRUALS.

4 (a) EXCISE TAX.—

5 (1) IN GENERAL.—Chapter 43 of subtitle D

6 (relating to qualified pension, etc., plans) is amend7 ed by adding at the end the following new section:

8 ‘‘SEC. 4980F. FAILURE OF DEFINED BENEFIT PLANS REDUC9 ING BENEFIT ACCRUALS TO SATISFY NOTICE

10 REQUIREMENTS.

11 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed

12 a tax on the failure of an applicable pension plan to meet

13 the requirements of subsection (e) with respect to any ap14 plicable individual.

15 ‘‘(b) AMOUNT OF TAX.—

16 ‘‘(1) IN GENERAL.—The amount of the tax im17 posed by subsection (a) on any failure with respect

18 to any applicable individual shall be $100 for each

19 day in the noncompliance period with respect to such

20 failure.

21 ‘‘(2) NONCOMPLIANCE PERIOD.—For purposes

22 of this section, the term ‘noncompliance period’

23 means, with respect to any failure, the period begin24 ning on the date the failure first occurs and ending

25 on the date the failure is corrected.
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1 ‘‘(3) MINIMUM TAX FOR NONCOMPLIANCE PE2 RIOD WHERE FAILURE DISCOVERED AFTER NOTICE

3 OF EXAMINATION.—Notwithstanding paragraphs (1)

4 and (2) of subsection (c)—

5 ‘‘(A) IN GENERAL.—In the case of 1 or

6 more failures with respect to an applicable

7 individual—

8 ‘‘(i) which are not corrected before the

9 date a notice of examination of income tax

10 liability is sent to the employer, and

11 ‘‘(ii) which occurred or continued dur12 ing the period under examination,

13 the amount of tax imposed by subsection (a) by

14 reason of such failures with respect to such

15 beneficiary shall not be less than the lesser of

16 $2,500 or the amount of tax which would be

17 imposed by subsection (a) without regard to

18 such paragraphs.

19 ‘‘(B) HIGHER MINIMUM TAX WHERE VIO20 LATIONS ARE MORE THAN DE MINIMIS.—To the

21 extent violations by the employer (or the plan in

22 the case of a multiemployer plan) for any year

23 are more than de minimis, subparagraph (A)

24 shall be applied by substituting ‘$15,000’ for
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1 ‘$2,500’ with respect to the employer (or such

2 plan).

3 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

4 ‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT

5 DISCOVERED EXERCISING REASONABLE DILI6 GENCE.—No tax shall be imposed by subsection (a)

7 on any failure during any period for which it is es8 tablished to the satisfaction of the Secretary that

9 none of the persons referred to in subsection (d)

10 knew, or exercising reasonable diligence would have

11 known, that the failure existed.

12 ‘‘(2) TAX NOT TO APPLY TO FAILURES COR13 RECTED WITHIN 30 DAYS.—No tax shall be imposed

14 by subsection (a) on any failure if—

15 ‘‘(A) such failure was due to reasonable

16 cause and not to willful neglect, and

17 ‘‘(B) such failure is corrected during the

18 30-day period beginning on the first date any of

19 the persons referred to in subsection (d) knew,

20 or exercising reasonable diligence would have

21 known, that such failure existed.

22 ‘‘(3) OVERALL LIMITATION FOR UNINTEN23 TIONAL FAILURES.—

24 ‘‘(A) IN GENERAL.—In the case of failures

25 that are due to reasonable cause and not to
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1 willful neglect, the tax imposed by subsection

2 (a) for failures during the taxable year of the

3 employer (or, in the case of a multiemployer

4 plan, the taxable year of the trust forming part

5 of the plan) shall not exceed $500,000. For

6 purposes of the preceding sentence, all multiem7 ployer plans of which the same trust forms a

8 part shall be treated as 1 plan.

9 ‘‘(B) TAXABLE YEARS IN THE CASE OF

10 CERTAIN CONTROLLED GROUPS.—For purposes

11 of this paragraph, if all persons who are treated

12 as a single employer for purposes of this section

13 do not have the same taxable year, the taxable

14 years taken into account shall be determined

15 under principles similar to the principles of sec16 tion 1561.

17 ‘‘(4) WAIVER BY SECRETARY.—In the case of a

18 failure which is due to reasonable cause and not to

19 willful neglect, the Secretary may waive part or all

20 of the tax imposed by subsection (a) to the extent

21 that the payment of such tax would be excessive rel22 ative to the failure involved.

23 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia24 ble for the tax imposed by subsection (a):
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1 ‘‘(1) In the case of a plan other than a multi2 employer plan, the employer.

3 ‘‘(2) In the case of a multiemployer plan, the

4 plan.

5 ‘‘(e) NOTICE REQUIREMENTS FOR PLANS SIGNIFI6 CANTLY REDUCING BENEFIT ACCRUALS.—

7 ‘‘(1) IN GENERAL.—If a defined benefit plan

8 adopts an amendment which has the effect of signifi9 cantly reducing the rate of future benefit accrual of

10 1 or more participants (including any elimination or

11 reduction of an early retirement benefit or retire12 ment-type subsidy), the plan administrator shall, not

13 later than the 30th day before the effective date of

14 the amendment, provide written notice to each appli15 cable individual (and to each employee organization

16 representing applicable individuals) which—

17 ‘‘(A) sets forth the plan amendment and

18 its effective date, and

19 ‘‘(B) includes sufficient information (as de20 termined in accordance with regulations pre21 scribed by the Secretary) to allow such partici22 pants and beneficiaries to understand how the

23 amendment generally affects different classes of

24 employees.
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1 ‘‘(2) ADDITIONAL NOTICE REQUIRED IN CER2 TAIN CASES.—

3 ‘‘(A) IN GENERAL.—If a plan amendment

4 to which paragraph (1) applies—

5 ‘‘(i) either—

6 ‘‘(I) provides for a significant

7 change in the manner in which the ac8 crued benefit of an applicable indi9 vidual is determined under the plan,

10 or

11 ‘‘(II) requires an applicable indi12 vidual to choose between 2 or more

13 benefit formulas, and

14 ‘‘(ii) may reasonably be expected to

15 affect such applicable individual,

16 the plan shall, not later than the date which is

17 6 months after the effective date of the amend18 ment, provide written notice to such applicable

19 individual which includes the information de20 scribed in subparagraph (B).

21 ‘‘(B) ADDITIONAL INFORMATION.—The

22 notice under subparagraph (A) shall include the

23 following information:

24 ‘‘(i) The accrued benefit (and if the

25 amendment adds the option of an imme-
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1 diate lump sum distribution, the present

2 value of the accrued benefit) as of the ef3 fective date, determined under the terms of

4 the plan in effect immediately before the

5 effective date.

6 ‘‘(ii) The accrued benefit as of the ef7 fective date, determined under the terms of

8 the plan in effect on the effective date and

9 without regard to any minimum accrued

10 benefit required by reason of section

11 411(d)(6).

12 ‘‘(iii) Sufficient information (as deter13 mined in accordance with regulations pre14 scribed by the Secretary) for an applicable

15 individual to compute their projected ac16 crued benefit under the terms of the plan

17 in effect on the effective date or to acquire

18 information necessary to compute such

19 projected accrued benefit.

20 ‘‘(C) OPTION TO PROVIDE PROJECTED AC21 CRUED BENEFIT.—A plan may, in lieu of the

22 information described in subparagraph (B)(iii),

23 include a determination of an applicable individ24 ual’s projected accrued benefit under the terms

25 of the plan in effect on the effective date. Such
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1 determination shall include a disclosure of the

2 assumptions used by the plan in determining

3 such benefit and such assumptions must be rea4 sonable in the aggregate.

5 ‘‘(D) RULES FOR COMPUTING BENEFITS.—

6 For purposes of this paragraph, an applicable

7 individual’s accrued benefit and projected ac8 crued benefit shall be computed—

9 ‘‘(i) as if the accrued benefit were in

10 the form of a single life annuity com11 mencing at normal retirement age (and by

12 taking into account any early retirement

13 subsidy), and

14 ‘‘(ii) by using the applicable mortality

15 table and the applicable interest rate under

16 section 417(e)(3)(A).

17 ‘‘(3) SECRETARY MAY CHANGE NOTICE AND

18 TIME FOR NOTICE.—If a plan amendment to which

19 paragraph (1) applies requires an applicable indi20 vidual to choose between 2 or more benefit formulas,

21 the Secretary may, after consultation with the Sec22 retary of Labor—

23 ‘‘(A) require additional information to be

24 provided in either of the notices described in

25 paragraph (1) or (2), and
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1 ‘‘(B) require either of such notices to be

2 provided at a time other than the time required

3 under either such paragraph.

4 ‘‘(4) NOTICE BEFORE ADOPTION OF AMEND5 MENT.—A plan shall not be treated as failing to

6 meet the requirements of paragraph (1) or (2) mere7 ly because notice is provided before the adoption of

8 the plan amendment if no material modification of

9 the amendment occurs before the amendment is

10 adopted.

11 ‘‘(5) NOTICE TO DESIGNEE.—Any notice under

12 paragraph (1) or (2) may be provided to a person

13 designated, in writing, by the person to which it

14 would otherwise be provided.

15 ‘‘(f) APPLICABLE INDIVIDUAL.—For purposes of this

16 section—

17 ‘‘(1) IN GENERAL.—The term ‘applicable indi18 vidual’ means, with respect to any plan

19 amendment—

20 ‘‘(A) any participant in the plan, and

21 ‘‘(B) any beneficiary who is an alternate

22 payee (within the meaning of section 414(p)(8))

23 under an applicable qualified domestic relations

24 order (within the meaning of section

25 414(p)(1)(A)).
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1 ‘‘(2) EXCEPTION FOR PARTICIPANTS WITH LESS

2 THAN 1 YEAR OF PARTICIPATION.—Such term shall

3 not include a participant who has less than 1 year

4 of participation (within the meaning of section

5 411(b)(4)) under the plan as of the effective date of

6 the plan amendment.

7 ‘‘(3) PARTICIPANTS GETTING HIGHER OF BENE8 FITS.—Such term shall not include a participant or

9 beneficiary who, under the terms of the plan as of

10 the effective date of the plan amendment, is entitled

11 to the greater of the accrued benefit under such

12 terms or the accrued benefit under the terms of the

13 plan in effect immediately before the effective date.

14 ‘‘(g) APPLICABLE PENSION PLAN.—For purposes of

15 this section, the term ‘applicable pension plan’ means—

16 ‘‘(1) a defined benefit plan, or

17 ‘‘(2) an individual account plan which is subject

18 to the funding standards of section 412.’’

19 (2) CONFORMING AMENDMENT.—The table of

20 sections for chapter 43 of subtitle D is amended by

21 adding at the end the following new item:

‘‘Sec. 4980F. Failure of defined benefit plans reducing benefit accruals to satisfy notice requirements.’’

22 (b) AMENDMENT TO ERISA.—Section 204(h) of the

23 Employee Retirement Income Security Act of 1974 (29

24 U.S.C. 1054(h)) is amended to read as follows:
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1 ‘‘(h)(1) An applicable pension plan may not adopt an

2 amendment which has the effect of significantly reducing

3 the rate of future benefit accrual of 1 or more participants

4 (including any elimination or reduction of an early retire5 ment benefit or retirement-type subsidy) unless the plan

6 administrator provides, not later than the 30th day before

7 the effective date of the amendment, written notice to each

8 applicable individual (and to each employee organization

9 representing applicable individuals) which—

10 ‘‘(A) sets forth the plan amendment and its ef11 fective date, and

12 ‘‘(B) includes sufficient information (as deter13 mined in accordance with regulations prescribed by

14 the Secretary of the Treasury) to allow applicable in15 dividuals to understand how the amendment gen16 erally affects different classes of employees.

17 ‘‘(2)(A) If a plan amendment to which paragraph (1)

18 applies—

19 ‘‘(i) either—

20 ‘‘(I) provides for a significant change in

21 the manner in which the accrued benefit is de22 termined under the plan, or

23 ‘‘(II) requires an applicable individual to

24 choose between 2 or more benefit formulas, and
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1 ‘‘(ii) may reasonably be expected to affect such

2 applicable individual,

3 the plan shall, not later than the date which is 6 months

4 after the effective date of the amendment, provide written

5 notice to such applicable individual which includes the in6 formation described in subparagraph (B).

7 ‘‘(B) The notice under subparagraph (A) shall in8 clude the following information:

9 ‘‘(i) The accrued benefit (and if the amendment

10 adds the option of an immediate lump sum distribu11 tion, the present value of the accrued benefit) as of

12 the effective date, determined under the terms of the

13 plan in effect immediately before the effective date.

14 ‘‘(ii) The accrued benefit as of the effective

15 date, determined under the terms of the plan in ef16 fect on the effective date and without regard to any

17 minimum accrued benefit required by reason of sec18 tion 204(g).

19 ‘‘(iii) Sufficient information (as determined in

20 accordance with regulations prescribed by the Sec21 retary of the Treasury) for an applicable individual

22 to compute their projected accrued benefit under the

23 terms of the plan in effect on the effective date or

24 to acquire information necessary to compute such

25 projected accrued benefit.
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1 ‘‘(C) A plan may, in lieu of the information described

2 in subparagraph (B)(iii), include a determination of an ap3 plicable individual’s projected accrued benefit under the

4 terms of the plan in effect on the effective date. Such de5 termination shall include a disclosure of the assumptions

6 used by the plan in determining such benefit and such as7 sumptions must be reasonable in the aggregate.

8 ‘‘(D) For purposes of this paragraph, an applicable

9 individual’s accrued benefit and projected accrued benefit

10 shall be computed—

11 ‘‘(i) as if the accrued benefit were in the form

12 of a single life annuity commencing at normal retire13 ment age (and by taking into account any early re14 tirement subsidy), and

15 ‘‘(ii) by using the applicable mortality table and

16 the applicable interest rate under section

17 205(g)(3)(A).

18 ‘‘(3) If a plan amendment to which paragraph (1)

19 applies requires an applicable individual to choose between

20 2 or more benefit formulas, the Secretary of the Treasury

21 may, after consultation with the Secretary—

22 ‘‘(A) require additional information to be pro23 vided in either of the notices described in paragraph

24 (1) or (2), and
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1 ‘‘(B) require either of such notices to be pro2 vided at a time other than the time required under

3 either such paragraph.

4 ‘‘(4) A plan shall not be treated as failing to meet

5 the requirements of paragraph (1) or (2) merely because

6 notice is provided before the adoption of the plan amend7 ment if no material modification of the amendment occurs

8 before the amendment is adopted.

9 ‘‘(5) Any notice under paragraph (1) or (2) may be

10 provided to a person designated, in writing, by the person

11 to which it would otherwise be provided.

12 ‘‘(6)(A) For purposes of this subsection, the term ‘ap13 plicable individual’ means, with respect to any plan

14 amendment—

15 ‘‘(i) any participant in the plan, and

16 ‘‘(ii) any beneficiary who is an alternate payee

17 (within the meaning of section 206(d)(3)(K)) under

18 an applicable qualified domestic relations order

19 (within the meaning of section 206(d)(3)(B)).

20 ‘‘(B) Such term shall not include a participant who

21 has less than 1 year of participation (within the meaning

22 of section 204(b)(4)) under the plan as of the effective

23 date of the plan amendment.

24 ‘‘(C) Such term shall not include a participant or

25 beneficiary who, under the terms of the plan as of the ef-
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1 fective date of the plan amendment, is entitled to the

2 greater of the accrued benefit under such terms or the

3 accrued benefit under the terms of the plan in effect im4 mediately before the effective date.

5 ‘‘(7) For purposes of this subsection, the term ‘appli6 cable pension plan’ means—

7 ‘‘(A) a defined benefit plan, or

8 ‘‘(B) an individual account plan which is sub9 ject to the funding standards of section 302.’’

10 (c) EFFECTIVE DATES.—

11 (1) IN GENERAL.—The amendments made by

12 this section shall apply to plan amendments taking

13 effect on or after the date of the enactment of this

14 Act.

15 (2) SPECIAL RULE FOR COLLECTIVELY BAR16 GAINED PLANS.—In the case of a plan maintained

17 pursuant to 1 or more collective bargaining agree18 ments between employee representatives and 1 or

19 more employers ratified by the date of the enact20 ment of this Act, the amendments made by this sec21 tion shall not apply to plan amendments taking ef22 fect before the earlier of—

23 (A) the later of—

24 (i) the date on which the last of such

25 collective bargaining agreements termi-
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1 nates (determined without regard to any

2 extension thereof on or after such date of

3 enactment), or

4 (ii) January 1, 2000, or

5 (B) January 1, 2002.

6 (3) SPECIAL RULE.—The period for providing

7 any notice required by the amendments made by this

8 section shall not end before the date which is 3

9 months after the date of the enactment of this Act.

10 SEC. 345. PROTECTION OF INVESTMENT OF EMPLOYEE

11 CONTRIBUTIONS TO 401(K) PLANS.

12 (a) IN GENERAL.—Section 1524(b) of the Taxpayer

13 Relief Act of 1997 is amended to read as follows:

14 ‘‘(b) EFFECTIVE DATE.—

15 ‘‘(1) IN GENERAL.—Except as provided in para16 graph (2), the amendments made by this section

17 shall apply to elective deferrals for plan years begin18 ning after December 31, 1998.

19 ‘‘(2) NONAPPLICATION TO PREVIOUSLY AC20 QUIRED PROPERTY.—The amendments made by this

21 section shall not apply to any elective deferral used

22 to acquire an interest in the income or gain from

23 employer securities or employer real property

24 acquired—

25 ‘‘(A) before January 1, 1999, or
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1 ‘‘(B) after such date pursuant to a written

2 contract which was binding on such date and at

3 all times thereafter on such plan.’’

4 (b) EFFECTIVE DATE.—The amendment made by

5 this section shall apply as if included in the provision of

6 the Taxpayer Relief Act of 1997 to which it relates.

7 SEC. 346. TREATMENT OF MULTIEMPLOYER PLANS UNDER

8 SECTION 415.

9 (a) COMPENSATION LIMIT.—Paragraph (11) of sec10 tion 415(b) (relating to limitation for defined benefit

11 plans) is amended to read as follows:

12 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN13 MENTAL AND MULTIEMPLOYER PLANS.—In the case

14 of a governmental plan (as defined in section

15 414(d)) or a multiemployer plan (as defined in sec16 tion 414(f)), subparagraph (B) of paragraph (1)

17 shall not apply.’’

18 (b) COMBINING AND AGGREGATION OF PLANS.—

19 (1) COMBINING OF PLANS.—Subsection (f) of

20 section 415 (relating to combining of plans) is

21 amended by adding at the end the following:

22 ‘‘(3) EXCEPTION FOR MULTIEMPLOYER

23 PLANS.—Notwithstanding paragraph (1) and sub24 section (g), a multiemployer plan (as defined in sec25 tion 414(f)) shall not be combined or aggregated
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1 with any other plan maintained by an employer for

2 purposes of applying the limitations established in

3 this section. The preceding sentence shall not apply

4 for purposes of applying subsection (b)(1)(A) to a

5 plan which is not a multiemployer plan.’’

6 (2) CONFORMING AMENDMENT FOR AGGREGA7 TION OF PLANS.—Subsection (g) of section 415 (re8 lating to aggregation of plans) is amended by strik9 ing ‘‘The Secretary’’ and inserting ‘‘Except as pro10 vided in subsection (f)(3), the Secretary’’.

11 (c) APPLICATION OF SPECIAL EARLY RETIREMENT

12 RULES.—Section 415(b)(2)(F) (relating to plans main13 tained by governments and tax-exempt organizations) is

14 amended—

15 (1) by inserting ‘‘a multiemployer plan (within

16 the meaning of section 414(f)),’’ after ‘‘section

17 414(d)),’’, and

18 (2) by striking the heading and inserting:

19 ‘‘(F) SPECIAL EARLY RETIREMENT RULES

20 FOR CERTAIN PLANS.—’’.

21 (d) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to years beginning after December

23 31, 1999.
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1 Subtitle F—Encouraging

2 Retirement Education

3 SEC. 351. PERIODIC PENSION BENEFITS STATEMENTS.

4 (a) IN GENERAL.—Section 105(a) of the Employee

5 Retirement Income Security Act of 1974 (29 U.S.C. 1025

6 (a)) is amended to read as follows:

7 ‘‘(a)(1) Except as provided in paragraph (2)—

8 ‘‘(A) the administrator of an individual account

9 plan shall furnish a pension benefit statement—

10 ‘‘(i) to a plan participant at least once an11 nually, and

12 ‘‘(ii) to a plan beneficiary upon written re13 quest, and

14 ‘‘(B) the administrator of a defined benefit plan

15 shall furnish a pension benefit statement—

16 ‘‘(i) at least once every 3 years to each

17 participant with a nonforfeitable accrued ben18 efit who is employed by the employer maintain19 ing the plan at the time the statement is fur20 nished to participants, and

21 ‘‘(ii) to a participant or beneficiary of the

22 plan upon written request.

23 ‘‘(2) Notwithstanding paragraph (1), the adminis24 trator of a plan to which more than 1 unaffiliated em25 ployer is required to contribute shall only be required to
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1 furnish a pension benefit statement under paragraph (1)

2 upon the written request of a participant or beneficiary

3 of the plan.

4 ‘‘(3) A pension benefit statement under paragraph

5 (1)—

6 ‘‘(A) shall indicate, on the basis of the latest

7 available information—

8 ‘‘(i) the total benefits accrued, and

9 ‘‘(ii) the nonforfeitable pension benefits, if

10 any, which have accrued, or the earliest date on

11 which benefits will become nonforfeitable,

12 ‘‘(B) shall be written in a manner calculated to

13 be understood by the average plan participant, and

14 ‘‘(C) may be provided in written, electronic, tel15 ephonic, or other appropriate form.

16 ‘‘(4) In the case of a defined benefit plan, the require17 ments of paragraph (1)(B)(i) shall be treated as met with

18 respect to a participant if the administrator provides the

19 participant at least once each year with notice of the avail20 ability of the pension benefit statement and the ways in

21 which the participant may obtain such statement. Such

22 notice shall be provided in written, electronic, telephonic,

23 or other appropriate form, and may be included with other

24 communications to the participant if done in a manner
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1 reasonably designed to attract the attention of the partici2 pant.’’

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 105 of the Employee Retirement In5 come Security Act of 1974 (29 U.S.C. 1025) is

6 amended by striking subsection (d).

7 (2) Section 105(b) of such Act (29 U.S.C.

8 1025(b)) is amended to read as follows:

9 ‘‘(b) In no case shall a participant or beneficiary of

10 a plan be entitled to more than one statement described

11 in subsection (a)(1)(A) or (a)(1)(B)(ii), whichever is appli12 cable, in any 12-month period.’’

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to plan years beginning after De15 cember 31, 2000.

16 SEC. 352. CLARIFICATION OF TREATMENT OF EMPLOYER17 PROVIDED RETIREMENT ADVICE.

18 (a) IN GENERAL.—Subsection (a) of section 132 (re19 lating to exclusion from gross income) is amended by

20 striking ‘‘or’’ at the end of paragraph (5), by striking the

21 period at the end of paragraph (6) and inserting ‘‘, or’’,

22 and by adding at the end the following new paragraph:

23 ‘‘(7) qualified retirement planning services.’’

24 (b) QUALIFIED RETIREMENT PLANNING SERVICES

25 DEFINED.—Section 132 is amended by redesignating sub-
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1 section (m) as subsection (n) and by inserting after sub2 section (l) the following:

3 ‘‘(m) QUALIFIED RETIREMENT PLANNING SERV4 ICES.—

5 ‘‘(1) IN GENERAL.—For purposes of this sec6 tion, the term ‘qualified retirement planning serv7 ices’ means any retirement planning service provided

8 to an employee and his spouse by an employer main9 taining a qualified employer plan.

10 ‘‘(2) NONDISCRIMINATION RULE.—Subsection

11 (a)(7) shall apply in the case of highly compensated

12 employees only if such services are available on sub13 stantially the same terms to each member of the

14 group of employees normally provided education and

15 information regarding the employer’s qualified em16 ployer plan.

17 ‘‘(3) QUALIFIED EMPLOYER PLAN.—For pur18 poses of this subsection, the term ‘qualified employer

19 plan’ means a plan, contract, pension, or account de20 scribed in section 219(g)(5).’’

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to years beginning after December

23 31, 2000.
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1 Subtitle G—Reducing Regulatory

2 Burdens

3 SEC. 361. FLEXIBILITY IN NONDISCRIMINATION AND COV4 ERAGE RULES.

5 (a) NONDISCRIMINATION.—

6 (1) IN GENERAL.—The Secretary of the Treas7 ury shall, by regulation, provide that a plan shall be

8 deemed to satisfy the requirements of section

9 401(a)(4) of the Internal Revenue Code of 1986 if

10 such plan satisfies the facts and circumstances test

11 under section 401(a)(4) of such Code, as in effect

12 before January 1, 1994, but only if—

13 (A) the plan satisfies conditions prescribed

14 by the Secretary to appropriately limit the

15 availability of such test, and

16 (B) the plan is submitted to the Secretary

17 for a determination of whether it satisfies such

18 test.

19 Subparagraph (B) shall only apply to the extent pro20 vided by the Secretary.

21 (2) EFFECTIVE DATES.—

22 (A) REGULATIONS.—The regulation re23 quired by subsection (a) shall apply to years be24 ginning after December 31, 2000.
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1 (B) CONDITIONS OF AVAILABILITY.—Any

2 condition of availability prescribed by the Sec3 retary under paragraph (1)(A) shall not apply

4 before the first year beginning not less than

5 120 days after the date on which such condition

6 is prescribed.

7 (b) COVERAGE TEST.—

8 (1) IN GENERAL.—Section 410(b)(1) (relating

9 to minimum coverage requirements) is amended by

10 adding at the end the following:

11 ‘‘(D) In the case that the plan fails to

12 meet the requirements of subparagraphs (A),

13 (B) and (C), the plan—

14 ‘‘(i) satisfies subparagraph (B), as in

15 effect immediately before the enactment of

16 the Tax Reform Act of 1986,

17 ‘‘(ii) is submitted to the Secretary for

18 a determination of whether it satisfies the

19 requirement described in clause (i), and

20 ‘‘(iii) satisfies conditions prescribed by

21 the Secretary by regulation that appro22 priately limit the availability of this sub23 paragraph.

24 Clause (ii) shall apply only to the extent pro25 vided by the Secretary.’’.
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1 (2) EFFECTIVE DATES.—

2 (A) IN GENERAL.—The amendment made

3 by subsection (a) shall apply to years beginning

4 after December 31, 2000.

5 (B) CONDITIONS OF AVAILABILITY.—Any

6 condition of availability prescribed by the Sec7 retary under regulations prescribed by the Sec8 retary under section 410(b)(1)(D) of the Inter9 nal Revenue Code of 1986 shall not apply be10 fore the first year beginning not less than 120

11 days after the date on which such condition is

12 prescribed.

13 SEC. 362. MODIFICATION OF TIMING OF PLAN VALUATIONS.

14 (a) IN GENERAL.—Section 412(c)(9) (relating to an15 nual valuation) is amended—

16 (1) by striking ‘‘For purposes’’ and inserting

17 the following:

18 ‘‘(A) IN GENERAL.—For purposes’’, and

19 (2) by adding at the end the following:

20 ‘‘(B) ELECTION TO USE PRIOR YEAR

21 VALUATION.—

22 ‘‘(i) IN GENERAL.—Except as pro23 vided in clause (ii), if, for any plan year—
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1 ‘‘(I) an election is in effect under

2 this subparagraph with respect to a

3 plan, and

4 ‘‘(II) the assets of the plan are

5 not less than 125 percent of the

6 plan’s current liability (as defined in

7 paragraph (7)(B)), determined as of

8 the valuation date for the preceding

9 plan year,

10 then this section shall be applied using the

11 information available as of such valuation

12 date.

13 ‘‘(ii) EXCEPTIONS.—

14 ‘‘(I) ACTUAL VALUATION EVERY

15 3 YEARS.—Clause (i) shall not apply

16 for more than 2 consecutive plan

17 years and valuation shall be under

18 subparagraph (A) with respect to any

19 plan year to which clause (i) does not

20 apply by reason of this subclause.

21 ‘‘(II) REGULATIONS.—Clause (i)

22 shall not apply to the extent that

23 more frequent valuations are required

24 under the regulations under subpara25 graph (A).
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1 ‘‘(iii) ADJUSTMENTS.—Information

2 under clause (i) shall, in accordance with

3 regulations, be actuarially adjusted to re4 flect significant differences in participants.

5 ‘‘(iv) ELECTION.—An election under

6 this subparagraph, once made, shall be ir7 revocable without the consent of the Sec8 retary.’’

9 (b) AMENDMENTS TO ERISA.—Paragraph (9) of

10 section 302(c) of the Employee Retirement Income Secu11 rity Act of 1974 (29 U.S.C. 1053(c)) is amended—

12 (1) by inserting ‘‘(A)’’ after ‘‘(9)’’, and

13 (2) by adding at the end the following:

14 ‘‘(B)(i) Except as provided in clause (ii), if, for any

15 plan year—

16 ‘‘(I) an election is in effect under this subpara17 graph with respect to a plan, and

18 ‘‘(II) the assets of the plan are not less than

19 125 percent of the plan’s current liability (as defined

20 in paragraph (7)(B)), determined as of the valuation

21 date for the preceding plan year,

22 then this section shall be applied using the information

23 available as of such valuation date.

24 ‘‘(ii)(I) Clause (i) shall not apply for more than 2

25 consecutive plan years and valuation shall be under sub-
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1 paragraph (A) with respect to any plan year to which

2 clause (i) does not apply by reason of this subclause.

3 ‘‘(II) Clause (i) shall not apply to the extent that

4 more frequent valuations are required under the regula5 tions under subparagraph (A).

6 ‘‘(iii) Information under clause (i) shall, in accord7 ance with regulations, be actuarially adjusted to reflect

8 significant differences in participants.

9 ‘‘(iv) An election under this subparagraph, once

10 made, shall be irrevocable without the consent of the Sec11 retary of the Treasury.’’

12 (c) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to plan years beginning after De14 cember 31, 2000.

15 SEC. 363. SUBSTANTIAL OWNER BENEFITS IN TERMINATED

16 PLANS.

17 (a) MODIFICATION OF PHASE-IN OF GUARANTEE.—

18 Section 4022(b)(5) of the Employee Retirement Income

19 Security Act of 1974 (29 U.S.C. 1322(b)(5)) is amended

20 to read as follows:

21 ‘‘(5)(A) For purposes of this paragraph, the term

22 ‘majority owner’ means an individual who, at any time

23 during the 60-month period ending on the date the deter24 mination is being made—
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1 ‘‘(i) owns the entire interest in an unincor2 porated trade or business,

3 ‘‘(ii) in the case of a partnership, is a partner

4 who owns, directly or indirectly, 50 percent or more

5 of either the capital interest or the profits interest

6 in such partnership, or

7 ‘‘(iii) in the case of a corporation, owns, directly

8 or indirectly, 50 percent or more in value of either

9 the voting stock of that corporation or all the stock

10 of that corporation.

11 For purposes of clause (iii), the constructive ownership

12 rules of section 1563(e) of the Internal Revenue Code of

13 1986 shall apply (determined without regard to section

14 1563(e)(3)(C)).

15 ‘‘(B) In the case of a participant who is a majority

16 owner, the amount of benefits guaranteed under this sec17 tion shall equal the product of—

18 ‘‘(i) a fraction (not to exceed 1) the numerator

19 of which is the number of years from the later of the

20 effective date or the adoption date of the plan to the

21 termination date, and the denominator of which is

22 10, and

23 ‘‘(ii) the amount of benefits that would be guar24 anteed under this section if the participant were not

25 a majority owner.’’
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1 (b) MODIFICATION OF ALLOCATION OF ASSETS.—

2 (1) Section 4044(a)(4)(B) of the Employee Re3 tirement Income Security Act of 1974 (29 U.S.C.

4 1344(a)(4)(B)) is amended by striking ‘‘section

5 4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(B)’’.

6 (2) Section 4044(b) of such Act (29 U.S.C.

7 1344(b)) is amended—

8 (A) by striking ‘‘(5)’’ in paragraph (2) and

9 inserting ‘‘(4), (5),’’, and

10 (B) by redesignating paragraphs (3)

11 through (6) as paragraphs (4) through (7), re12 spectively, and by inserting after paragraph (2)

13 the following:

14 ‘‘(3) If assets available for allocation under

15 paragraph (4) of subsection (a) are insufficient to

16 satisfy in full the benefits of all individuals who are

17 described in that paragraph, the assets shall be allo18 cated first to benefits described in subparagraph (A)

19 of that paragraph. Any remaining assets shall then

20 be allocated to benefits described in subparagraph

21 (B) of that paragraph. If assets allocated to such

22 subparagraph (B) are insufficient to satisfy in full

23 the benefits described in that subparagraph, the as24 sets shall be allocated pro rata among individuals on

25 the basis of the present value (as of the termination
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1 date) of their respective benefits described in that

2 subparagraph.’’

3 (c) CONFORMING AMENDMENTS.—

4 (1) Section 4021 of the Employee Retirement

5 Income Security Act of 1974 (29 U.S.C. 1321) is

6 amended—

7 (A) in subsection (b)(9), by striking ‘‘as

8 defined in section 4022(b)(6)’’, and

9 (B) by adding at the end the following:

10 ‘‘(d) For purposes of subsection (b)(9), the term ‘sub11 stantial owner’ means an individual who, at any time dur12 ing the 60-month period ending on the date the determina13 tion is being made—

14 ‘‘(1) owns the entire interest in an unincor15 porated trade or business,

16 ‘‘(2) in the case of a partnership, is a partner

17 who owns, directly or indirectly, more than 10 per18 cent of either the capital interest or the profits inter19 est in such partnership, or

20 ‘‘(3) in the case of a corporation, owns, directly

21 or indirectly, more than 10 percent in value of either

22 the voting stock of that corporation or all the stock

23 of that corporation.

24 For purposes of paragraph (3), the constructive ownership

25 rules of section 1563(e) of the Internal Revenue Code of
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1 1986 shall apply (determined without regard to section

2 1563(e)(3)(C)).’’

3 (2) Section 4043(c)(7) of such Act (29 U.S.C.

4 1343(c)(7)) is amended by striking ‘‘section 4022(b)(6)’’

5 and inserting ‘‘section 4021(d)’’.

6 (d) EFFECTIVE DATES.—

7 (1) IN GENERAL.—Except as provided in para8 graph (2), the amendments made by this section

9 shall apply to plan terminations—

10 (A) under section 4041(c) of the Employee

11 Retirement Income Security Act of 1974 (29

12 U.S.C. 1341(c)) with respect to which notices

13 of intent to terminate are provided under sec14 tion 4041(a)(2) of such Act (29 U.S.C.

15 1341(a)(2)) after December 31, 2000, and

16 (B) under section 4042 of such Act (29

17 U.S.C. 1342) with respect to which proceedings

18 are instituted by the corporation after such

19 date.

20 (2) CONFORMING AMENDMENTS.—The amend21 ments made by subsection (c) shall take effect on

22 the date of enactment of this Act.
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1 SEC. 364. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT

2 LOSS OF DIVIDEND DEDUCTION.

3 (a) IN GENERAL.—Section 404(k)(2)(A) (defining

4 applicable dividends) is amended by striking ‘‘or’’ at the

5 end of clause (ii), by redesignating clause (iii) as clause

6 (iv), and by inserting after clause (ii) the following new

7 clause:

8 ‘‘(iii) is, at the election of such par9 ticipants or their beneficiaries—

10 ‘‘(I) payable as provided in clause

11 (i) or (ii), or

12 ‘‘(II) paid to the plan and rein13 vested in qualifying employer securi14 ties, or’’.

15 (b) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to taxable years beginning after

17 December 31, 2000.

18 SEC. 365. NOTICE AND CONSENT PERIOD REGARDING DIS19 TRIBUTIONS.

20 (a) EXPANSION OF PERIOD.—

21 (1) IN GENERAL.—

22 (A) AMENDMENT OF INTERNAL REVENUE

23 CODE OF 1986.—Subparagraph (A) of section

24 417(a)(6) is amended by striking ‘‘90-day’’ and

25 inserting ‘‘1-year’’.
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1 (B) AMENDMENT TO ERISA.—Subpara2 graph (A) of section 205(c)(7) of the Employee

3 Retirement Income Security Act of 1974 (29

4 U.S.C. 1055(c)(7)) is amended by striking ‘‘90-

5 day’’ and inserting ‘‘1-year’’.

6 (2) MODIFICATION OF REGULATIONS.—The

7 Secretary of the Treasury shall modify the regula8 tions under sections 402(f), 411(a)(11), and 417 of

9 the Internal Revenue Code of 1986 to substitute ‘‘1-

10 year’’ for ‘‘90 days’’ each place it appears in Treas11 ury Regulations sections 1.402(f)–1, 1.411(a)–11(c),

12 and 1.417(e)–1(b).

13 (3) EFFECTIVE DATE.—The amendments made

14 by paragraph (1) and the modifications required by

15 paragraph (2) shall apply to years beginning after

16 December 31, 2000.

17 (b) CONSENT REGULATION INAPPLICABLE TO CER18 TAIN DISTRIBUTIONS.—

19 (1) IN GENERAL.—The Secretary of the Treas20 ury shall modify the regulations under section

21 411(a)(11) of the Internal Revenue Code of 1986 to

22 provide that the description of a participant’s right,

23 if any, to defer receipt of a distribution shall also de24 scribe the consequences of failing to defer such re25 ceipt.
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1 (2) EFFECTIVE DATE.—The modifications re2 quired by paragraph (1) shall apply to years begin3 ning after December 31, 2000.

4 SEC. 366. REPEAL OF TRANSITION RULE RELATING TO CER5 TAIN HIGHLY COMPENSATED EMPLOYEES.

6 (a) IN GENERAL.—Paragraph (4) of section 1114(c)

7 of the Tax Reform Act of 1986 is hereby repealed.

8 (b) EFFECTIVE DATE.—The repeal made by sub9 section (a) shall apply to plan years beginning after De10 cember 31, 1999.

11 SEC. 367. EMPLOYEES OF TAX-EXEMPT ENTITIES.

12 (a) IN GENERAL.—The Secretary of the Treasury

13 shall modify Treasury Regulations section 1.410(b)–6(g)

14 to provide that employees of an organization described in

15 section 403(b)(1)(A)(i) of the Internal Revenue Code of

16 1986 who are eligible to make contributions under section

17 403(b) of such Code pursuant to a salary reduction agree18 ment may be treated as excludable with respect to a plan

19 under section 401 (k) or (m) of such Code that is provided

20 under the same general arrangement as a plan under such

21 section 401(k), if—

22 (1) no employee of an organization described in

23 section 403(b)(1)(A)(i) of such Code is eligible to

24 participate in such section 401(k) plan or section

25 401(m) plan, and
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1 (2) 95 percent of the employees who are not

2 employees of an organization described in section

3 403(b)(1)(A)(i) of such Code are eligible to partici4 pate in such plan under such section 401 (k) or (m).

5 (b) EFFECTIVE DATE.—The modification required by

6 subsection (a) shall apply as of the same date set forth

7 in section 1426(b) of the Small Business Job Protection

8 Act of 1996.

9 SEC. 368. EXTENSION TO INTERNATIONAL ORGANIZATIONS

10 OF MORATORIUM ON APPLICATION OF CER11 TAIN NONDISCRIMINATION RULES APPLICA12 BLE TO STATE AND LOCAL PLANS.

13 (a) IN GENERAL.—Subparagraph (G) of section

14 401(a)(5), subparagraph (H) of section 401(a)(26), sub15 paragraph (G) of section 401(k)(3), and paragraph (2) of

16 section 1505(d) of the Taxpayer Relief Act of 1997 are

17 each amended by inserting ‘‘or by an international organi18 zation which is described in section 414(d)’’ after ‘‘or in19 strumentality thereof)’’.

20 (b) CONFORMING AMENDMENTS.—

21 (1) The headings for subparagraph (G) of sec22 tion 401(a)(5) and subparagraph (H) of section

23 401(a)(26) are each amended by inserting ‘‘AND

24 INTERNATIONAL ORGANIZATION’’ after ‘‘GOVERN25 MENTAL’’.
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1 (2) Subparagraph (G) of section 401(k)(3) is

2 amended by inserting ‘‘STATE AND LOCAL GOVERN3 MENTAL AND INTERNATIONAL ORGANIZATION

4 PLANS.—’’ after ‘‘(G)’’.

5 (c) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to years beginning after December

7 31, 2000.

8 SEC. 369. ANNUAL REPORT DISSEMINATION.

9 (a) IN GENERAL.—Section 104(b)(3) of the Em10 ployee Retirement Income Security Act of 1974 (29

11 U.S.C. 1024(b)(3)) is amended by striking ‘‘shall furnish’’

12 and inserting ‘‘shall make available for examination (and,

13 upon request, shall furnish)’’.

14 (b) EFFECTIVE DATE.—The amendment made by

15 this section shall apply to reports for years beginning after

16 December 31, 1998.

17 SEC. 370. MODIFICATION OF EXCLUSION FOR EMPLOYER

18 PROVIDED TRANSIT PASSES.

19 (a) IN GENERAL.—Section 132(f)(3) (relating to

20 cash reimbursements) is amended by striking the last sen21 tence.

22 (b) EFFECTIVE DATE.—The amendment made by

23 this section shall apply to taxable years beginning after

24 December 31, 1999.
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1 Subtitle H—Plan Amendments

2 SEC. 371. PROVISIONS RELATING TO PLAN AMENDMENTS.

3 (a) IN GENERAL.—If this section applies to any plan

4 or contract amendment—

5 (1) such plan or contract shall be treated as

6 being operated in accordance with the terms of the

7 plan during the period described in subsection

8 (b)(2)(A), and

9 (2) such plan shall not fail to meet the require10 ments of section 411(d)(6) of the Internal Revenue

11 Code of 1986 by reason of such amendment.

12 (b) AMENDMENTS TO WHICH SECTION APPLIES.—

13 (1) IN GENERAL.—This section shall apply to

14 any amendment to any plan or annuity contract

15 which is made—

16 (A) pursuant to any amendment made by

17 this title, or pursuant to any regulation issued

18 under this title, and

19 (B) on or before the last day of the first

20 plan year beginning on or after January 1,

21 2003.

22 In the case of a government plan (as defined in sec23 tion 414(d) of the Internal Revenue Code of 1986),

24 this paragraph shall be applied by substituting

25 ‘‘2005’’ for ‘‘2003’’.
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1 (2) CONDITIONS.—This section shall not apply

2 to any amendment unless—

3 (A) during the period—

4 (i) beginning on the date the legisla5 tive or regulatory amendment described in

6 paragraph (1)(A) takes effect (or in the

7 case of a plan or contract amendment not

8 required by such legislative or regulatory

9 amendment, the effective date specified by

10 the plan), and

11 (ii) ending on the date described in

12 paragraph (1)(B) (or, if earlier, the date

13 the plan or contract amendment is adopt14 ed),

15 the plan or contract is operated as if such plan

16 or contract amendment were in effect, and

17 (B) such plan or contract amendment ap18 plies retroactively for such period.

19 TITLE IV—EDUCATION TAX

20 RELIEF PROVISIONS

21 SEC. 401. ELIMINATION OF 60-MONTH LIMIT AND INCREASE

22 IN INCOME LIMITATION ON STUDENT LOAN

23 INTEREST DEDUCTION.

24 (a) ELIMINATION OF 60-MONTH LIMIT.—
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1 (1) IN GENERAL.—Section 221 (relating to in2 terest on education loans) is amended by striking

3 subsection (d) and by redesignating subsections (e),

4 (f), and (g) as subsections (d), (e), and (f), respec5 tively.

6 (2) CONFORMING AMENDMENT.—Section

7 6050S(e) is amended by striking ‘‘section 221(e)(1)’’

8 and inserting ‘‘section 221(d)(1)’’.

9 (3) EFFECTIVE DATE.—The amendments made

10 by this subsection shall apply with respect to any

11 loan interest paid after December 31, 1999, in tax12 able years ending after such date.

13 (b) INCREASE IN INCOME LIMITATION.—

14 (1) IN GENERAL.—Section 221(b)(2)(B) (relat15 ing to amount of reduction) is amended by striking

16 clauses (i) and (ii) and inserting the following:

17 ‘‘(i) the excess of—

18 ‘‘(I) the taxpayer’s modified ad19 justed gross income for such taxable

20 year, over

21 ‘‘(II) $50,000 (twice such dollar

22 amount in the case of a joint return),

23 bears to

24 ‘‘(ii) $15,000.’’
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1 (2) CONFORMING AMENDMENT.—Section

2 221(g)(1) is amended by striking ‘‘$40,000 and

3 $60,000 amounts’’ and inserting ‘‘$50,000 amount’’.

4 (3) EFFECTIVE DATE.—The amendments made

5 by this subsection shall apply to taxable years end6 ing after December 31, 1999.

7 SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PRO8 GRAMS.

9 (a) ELIGIBLE EDUCATIONAL INSTITUTIONS PER10 MITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.—

11 (1) IN GENERAL.—Section 529(b)(1) (defining

12 qualified State tuition program) is amended by in13 serting ‘‘or by 1 or more eligible educational institu14 tions’’ after ‘‘maintained by a State or agency or in15 strumentality thereof ’’.

16 (2) PRIVATE QUALIFIED TUITION PROGRAMS

17 LIMITED TO BENEFIT PLANS.—Clause (ii) of section

18 529(b)(1)(A) is amended by inserting ‘‘in the case of

19 a program established and maintained by a State or

20 agency or instrumentality thereof,’’ before ‘‘may

21 make’’.

22 (3) CONFORMING AMENDMENTS.—

23 (A) Sections 72(e)(9), 135(c)(2)(C),

24 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and

25 6693(a)(2)(C) are each amended by striking
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1 ‘‘qualified State tuition’’ each place it appears

2 and inserting ‘‘qualified tuition’’.

3 (B) The headings for sections 72(e)(9) and

4 135(c)(2)(C) are each amended by striking

5 ‘‘QUALIFIED STATE TUITION’’ and inserting

6 ‘‘QUALIFIED TUITION’’.

7 (C) The headings for sections 529(b) and

8 530(b)(2)(B) are each amended by striking

9 ‘‘QUALIFIED STATE TUITION’’ and inserting

10 ‘‘QUALIFIED TUITION’’.

11 (D) The heading for section 529 is amend12 ed by striking ‘‘STATE’’.

13 (E) The item relating to section 529 in the

14 table of sections for part VIII of subchapter F

15 of chapter 1 is amended by striking ‘‘State’’.

16 (b) EXCLUSION FROM GROSS INCOME OF EDU17 CATION DISTRIBUTIONS FROM QUALIFIED TUITION PRO18 GRAMS.—

19 (1) IN GENERAL.—Section 529(c)(3)(B) (relat20 ing to distributions) is amended to read as follows:

21 ‘‘(B) DISTRIBUTIONS FOR QUALIFIED

22 HIGHER EDUCATION EXPENSES.—For purposes

23 of this paragraph—

24 ‘‘(i) IN-KIND DISTRIBUTIONS.—No

25 amount shall be includible in gross income
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1 under subparagraph (A) by reason of a

2 distribution which consists of providing a

3 benefit to the distributee which, if paid for

4 by the distributee, would constitute pay5 ment of a qualified higher education ex6 pense.

7 ‘‘(ii) CASH DISTRIBUTIONS.—In the

8 case of distributions not described in

9 clause (i), if—

10 ‘‘(I) such distributions do not ex11 ceed the qualified higher education ex12 penses (reduced by expenses described

13 in clause (i)), no amount shall be in14 cludible in gross income, and

15 ‘‘(II) in any other case, the

16 amount otherwise includible in gross

17 income shall be reduced by an amount

18 which bears the same ratio to such

19 amount as such expenses bear to such

20 distributions.

21 ‘‘(iii) EXCEPTION FOR INSTITUTIONAL

22 PROGRAMS.—In the case of any taxable

23 year beginning before January 1, 2004,

24 clauses (i) and (ii) shall not apply with re25 spect to any distribution during such tax-
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1 able year under a qualified tuition program

2 established and maintained by 1 or more

3 eligible educational institutions.

4 ‘‘(iv) TREATMENT AS DISTRIBU5 TIONS.—Any benefit furnished to a des6 ignated beneficiary under a qualified tui7 tion program shall be treated as a distribu8 tion to the beneficiary for purposes of this

9 paragraph.

10 ‘‘(v) COORDINATION WITH HOPE AND

11 LIFETIME LEARNING CREDITS.—The total

12 amount of qualified higher education ex13 penses with respect to an individual for the

14 taxable year shall be reduced—

15 ‘‘(I) as provided in section

16 25A(g)(2), and

17 ‘‘(II) by the amount of such ex18 penses which were taken into account

19 in determining the credit allowed to

20 the taxpayer or any other person

21 under section 25A.

22 ‘‘(vi) COORDINATION WITH EDU23 CATION INDIVIDUAL RETIREMENT AC24 COUNTS.—If, with respect to an individual

25 for any taxable year—
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1 ‘‘(I) the aggregate distributions

2 to which clauses (i) and (ii) and sec3 tion 530(d)(2)(A) apply, exceed

4 ‘‘(II) the total amount of quali5 fied higher education expenses other6 wise taken into account under clauses

7 (i) and (ii) (after the application of

8 clause (v)) for such year,

9 the taxpayer shall allocate such expenses

10 among such distributions for purposes of

11 determining the amount of the exclusion

12 under clauses (i) and (ii) and section

13 530(d)(2)(A).’’

14 (2) CONFORMING AMENDMENTS.—

15 (A) Section 135(d)(2)(B) is amended by

16 striking ‘‘the exclusion under section

17 530(d)(2)’’ and inserting ‘‘the exclusions under

18 sections 529(c)(3)(B)(i) and 530(d)(2)’’.

19 (B) Section 221(e)(2)(A) is amended by

20 inserting ‘‘529,’’ after ‘‘135,’’.

21 (c) COORDINATION WITH HOPE AND LIFETIME

22 LEARNING CREDITS AND QUALIFIED TUITION PRO23 GRAMS.—

24 (1) IN GENERAL.—Section 530(d)(2)(C) is

25 amended to read as follows:
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1 ‘‘(C) COORDINATION WITH HOPE AND

2 LIFETIME LEARNING CREDITS AND QUALIFIED

3 TUITION PROGRAMS.—For purposes of subpara4 graph (A)—

5 ‘‘(i) CREDIT COORDINATION.—The

6 total amount of qualified higher education

7 expenses with respect to an individual for

8 the taxable year shall be reduced—

9 ‘‘(I) as provided in section

10 25A(g)(2), and

11 ‘‘(II) by the amount of such ex12 penses which were taken into account

13 in determining the credit allowed to

14 the taxpayer or any other person

15 under section 25A.

16 ‘‘(ii) COORDINATION WITH QUALIFIED

17 TUITION PROGRAMS.—If, with respect to

18 an individual for any taxable year—

19 ‘‘(I) the aggregate distributions

20 during such year to which subpara21 graph (A) and section 529(c)(3)(B)

22 apply, exceed

23 ‘‘(II) the total amount of quali24 fied higher education expenses other25 wise taken into account under sub-
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1 paragraph (A) (after the application

2 of clause (i)) for such year,

3 the taxpayer shall allocate such expenses

4 among such distributions for purposes of

5 determining the amount of the exclusion

6 under subparagraph (A) and section

7 529(c)(3)(B).’’

8 (2) CONFORMING AMENDMENTS.—

9 (A) Subsection (e) of section 25A is

10 amended to read as follows:

11 ‘‘(e) ELECTION TO HAVE SECTION APPLY.—No

12 credit shall be allowed under subsection (a) for a taxable

13 year with respect to the qualified tuition and related ex14 penses of an individual unless the taxpayer elects to have

15 this section apply with respect to such individual for such

16 year.’’

17 (B) Section 135(d)(2)(A) is amended by

18 striking ‘‘allowable’’ and inserting ‘‘allowed’’.

19 (C) Section 530(d)(2)(D) is amended—

20 (i) by striking ‘‘or credit’’, and

21 (ii) by striking ‘‘CREDIT OR’’ in the

22 heading.

23 (d) ROLLOVER TO DIFFERENT PROGRAM FOR BEN24 EFIT OF SAME DESIGNATED BENEFICIARY.—Section
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1 529(c)(3)(C) (relating to change in beneficiaries) is

2 amended—

3 (1) by striking ‘‘transferred to the credit’’ in

4 clause (i) and inserting ‘‘transferred—

5 ‘‘(I) to another qualified tuition

6 program for the benefit of the des7 ignated beneficiary, or

8 ‘‘(II) to the credit’’,

9 (2) by adding at the end the following new

10 clause:

11 ‘‘(iii) LIMITATION ON CERTAIN ROLL12 OVERS.—Clause (i)(I) shall not apply to

13 any amount transferred with respect to a

14 designated beneficiary if, at any time dur15 ing the 1-year period ending on the day of

16 such transfer, any other amount was

17 transferred with respect to such beneficiary

18 which was not includible in gross income

19 by reason of clause (i)(I).’’, and

20 (3) by inserting ‘‘OR PROGRAMS’’ after ‘‘BENE21 FICIARIES’’ in the heading.

22 (e) MEMBER OF FAMILY INCLUDES FIRST COUS23 IN.—Section 529(e)(2) (defining member of family) is

24 amended by striking ‘‘and’’ at the end of subparagraph

25 (B), by striking the period at the end of subparagraph
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1 (C) and by inserting ‘‘; and’’, and by adding at the end

2 the following new subparagraph:

3 ‘‘(D) any first cousin of such beneficiary.’’

4 (f) DEFINITION OF QUALIFIED HIGHER EDUCATION

5 EXPENSES.—

6 (1) IN GENERAL.—Subparagraph (A) of section

7 529(e)(3) (relating to definition of qualified higher

8 education expenses) is amended to read as follows:

9 ‘‘(A) IN GENERAL.—The term ‘qualified

10 higher education expenses’ means—

11 ‘‘(i) tuition and fees required for the

12 enrollment or attendance of a designated

13 beneficiary at an eligible educational insti14 tution for courses of instruction of such

15 beneficiary at such institution, and

16 ‘‘(ii) expenses for books, supplies, and

17 equipment which are incurred in connec18 tion with such enrollment or attendance,

19 but not to exceed the allowance for books

20 and supplies included in the cost of attend21 ance (as defined in section 472 of the

22 Higher Education Act of 1965 (20 U.S.C.

23 1087ll), as in effect on the date of enact24 ment of the Taxpayer Refund Act of 1999)
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1 as determined by the eligible educational

2 institution.’’

3 (2) EXCEPTION FOR EDUCATION INVOLVING

4 SPORTS, ETC.—Paragraph (3) of section 529(e) (re5 lating to qualified higher education expenses) is

6 amended by adding at the end the following new

7 subparagraph:

8 ‘‘(C) EXCEPTION FOR EDUCATION INVOLV9 ING SPORTS, ETC.—The term ‘qualified higher

10 education expenses’ shall not include expenses

11 with respect to any course or other education

12 involving sports, games, or hobbies unless such

13 course or other education is part of the bene14 ficiary’s degree program or is taken to acquire

15 or improve job skills of the beneficiary.’’

16 (g) EFFECTIVE DATES.—

17 (1) IN GENERAL.—The amendments made by

18 this section shall apply to taxable years beginning

19 after December 31, 1999.

20 (2) QUALIFIED HIGHER EDUCATION EX21 PENSES.—The amendments made by subsection (f)

22 shall apply to amounts paid for courses beginning

23 after December 31, 1999.
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1 SEC. 403. EXCLUSION OF CERTAIN AMOUNTS RECEIVED

2 UNDER THE NATIONAL HEALTH SERVICE

3 CORPS SCHOLARSHIP PROGRAM AND THE F.

4 EDWARD HEBERT ARMED FORCES HEALTH

5 PROFESSIONS SCHOLARSHIP AND FINANCIAL

6 ASSISTANCE PROGRAM.

7 (a) IN GENERAL.—Section 117(c) (relating to the ex8 clusion from gross income amounts received as a qualified

9 scholarship) is amended—

10 (1) by striking ‘‘Subsections (a)’’ and inserting

11 the following:

12 ‘‘(1) IN GENERAL.—Except as provided in para13 graph (2), subsections (a)’’, and

14 (2) by adding at the end the following new

15 paragraph:

16 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not

17 apply to any amount received by an individual

18 under—

19 ‘‘(A) the National Health Service Corps

20 Scholarship program under section

21 338A(g)(1)(A) of the Public Health Service

22 Act, or

23 ‘‘(B) the Armed Forces Health Professions

24 Scholarship and Financial Assistance program

25 under subchapter I of chapter 105 of title 10,

26 United States Code.’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 subsection (a) shall apply to amounts received in taxable

3 years beginning after December 31, 1993.

4 SEC. 404. PERMANENT EXTENSION OF EXCLUSION FOR EM5 PLOYER-PROVIDED EDUCATIONAL ASSIST6 ANCE.

7 (a) IN GENERAL.—Section 127 (relating to exclusion

8 for educational assistance programs) is amended by strik9 ing subsection (d).

10 (b) REPEAL OF LIMITATION ON GRADUATE EDU11 CATION.—

12 (1) IN GENERAL.—The last sentence of section

13 127(c)(1) is amended by striking ‘‘, and such term

14 also does not include any payment for, or the provi15 sion of any benefits with respect to, any graduate

16 level course of a kind normally taken by an indi17 vidual pursuing a program leading to a law, busi18 ness, medical, or other advanced academic or profes19 sional degree’’.

20 (2) EFFECTIVE DATE.—The amendment made

21 by paragraph (1) shall apply with respect to ex22 penses relating to courses beginning after December

23 31, 1999.
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1 SEC. 405. ADDITIONAL INCREASE IN ARBITRAGE REBATE

2 EXCEPTION FOR GOVERNMENTAL BONDS

3 USED TO FINANCE EDUCATIONAL FACILI4 TIES.

5 (a) IN GENERAL.—Section 148(f)(4)(D)(vii) (relat6 ing to increase in exception for bonds financing public

7 school capital expenditures) is amended by striking

8 ‘‘$5,000,000’’ the second place it appears and inserting

9 ‘‘$10,000,000’’.

10 (b) EFFECTIVE DATE.—The amendment made by

11 subsection (a) shall apply to obligations issued in calendar

12 years beginning after December 31, 1999.

13 SEC. 406. TREATMENT OF QUALIFIED PUBLIC EDU14 CATIONAL FACILITY BONDS AS EXEMPT FA15 CILITY BONDS.

16 (a) TREATMENT AS EXEMPT FACILITY BOND.—Sub17 section (a) of section 142 (relating to exempt facility

18 bond) is amended by striking ‘‘or’’ at the end of paragraph

19 (11), by striking the period at the end of paragraph (12)

20 and inserting ‘‘, or’’, and by adding at the end the fol21 lowing new paragraph:

22 ‘‘(13) qualified public educational facilities.’’

23 (b) QUALIFIED PUBLIC EDUCATIONAL FACILI24 TIES.—Section 142 (relating to exempt facility bond) is

25 amended by adding at the end the following new sub26 section:
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1 ‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILI2 TIES.—

3 ‘‘(1) IN GENERAL.—For purposes of subsection

4 (a)(13), the term ‘qualified public educational facil5 ity’ means any school facility which is—

6 ‘‘(A) part of a public elementary school or

7 a public secondary school, and

8 ‘‘(B) owned by a private, for-profit cor9 poration pursuant to a public-private partner10 ship agreement with a State or local edu11 cational agency described in paragraph (2).

12 ‘‘(2) PUBLIC-PRIVATE PARTNERSHIP AGREE13 MENT DESCRIBED.—A public-private partnership

14 agreement is described in this paragraph if it is an

15 agreement—

16 ‘‘(A) under which the corporation agrees—

17 ‘‘(i) to do 1 or more of the following:

18 construct, rehabilitate, refurbish, or equip

19 a school facility, and

20 ‘‘(ii) at the end of the term of the

21 agreement, to transfer the school facility to

22 such agency for no additional consider23 ation, and

24 ‘‘(B) the term of which does not exceed the

25 last maturity date of any bond which is a part
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1 of the issue to be used to finance the activities

2 described in subparagraph (A)(i).

3 ‘‘(3) SCHOOL FACILITY.—For purposes of this

4 subsection, the term ‘school facility’ means—

5 ‘‘(A) school buildings,

6 ‘‘(B) functionally related and subordinate

7 facilities and land with respect to such build8 ings, including any stadium or other facility pri9 marily used for school events, and

10 ‘‘(C) any property, to which section 168

11 applies (or would apply but for section 179), for

12 use in the facility.

13 ‘‘(4) PUBLIC SCHOOLS.—For purposes of this

14 subsection, the terms ‘elementary school’ and ‘sec15 ondary school’ have the meanings given such terms

16 by section 14101 of the Elementary and Secondary

17 Education Act of 1965 (20 U.S.C. 8801), as in ef18 fect on the date of the enactment of this subsection.

19 ‘‘(5) ANNUAL AGGREGATE FACE AMOUNT OF

20 TAX-EXEMPT FINANCING.—

21 ‘‘(A) IN GENERAL.—An issue shall not be

22 treated as an issue described in subsection

23 (a)(13) if the aggregate face amount of bonds

24 issued by the State pursuant thereto (when

25 added to the aggregate face amount of bonds
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1 previously so issued during the calendar year)

2 exceeds an amount equal to the greater of—

3 ‘‘(i) $10 multiplied by the State popu4 lation, or

5 ‘‘(ii) $5,000,000.

6 ‘‘(B) ALLOCATION RULES.—

7 ‘‘(i) IN GENERAL.—Except as other8 wise provided in this subparagraph, the

9 State may allocate the amount described in

10 subparagraph (A) for any calendar year in

11 such manner as the State determines ap12 propriate.

13 ‘‘(ii) RULES FOR CARRYFORWARD OF

14 UNUSED LIMITATION.—A State may elect

15 to carry forward an unused limitation for

16 any calendar year for 3 calendar years fol17 lowing the calendar year in which the un18 used limitation arose under rules similar to

19 the rules of section 146(f), except that the

20 only purpose for which the carryforward

21 may be elected is the issuance of exempt

22 facility bonds described in subsection

23 (a)(13).’’
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1 (c) EXEMPTION FROM GENERAL STATE VOLUME

2 CAPS.—Paragraph (3) of section 146(g) (relating to ex3 ception for certain bonds) is amended—

4 (1) by striking ‘‘or (12)’’ and inserting ‘‘(12),

5 or (13)’’, and

6 (2) by striking ‘‘and environmental enhance7 ments of hydroelectric generating facilities’’ and in8 serting ‘‘environmental enhancements of hydro9 electric generating facilities, and qualified public

10 educational facilities’’.

11 (d) EXEMPTION FROM LIMITATION ON USE FOR

12 LAND ACQUISITION.—Section 147(h) (relating to certain

13 rules not to apply to mortgage revenue bonds, qualified

14 student loan bonds, and qualified 501(c)(3) bonds) is

15 amended by adding at the end the following new para16 graph:

17 ‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED

18 PUBLIC-PRIVATE SCHOOLS.—Subsection (c) shall not

19 apply to any exempt facility bond issued as part of

20 an issue described in section 142(a)(13) (relating to

21 qualified public educational facilities).’’

22 (e) CONFORMING AMENDMENT.—The heading for

23 section 147(h) is amended by striking ‘‘MORTGAGE REV24 ENUE BONDS, QUALIFIED STUDENT LOAN BONDS, AND
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1 QUALIFIED 501(c)(3) BONDS’’ and inserting ‘‘CERTAIN

2 BONDS’’.

3 (f) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to bonds issued after December

5 31, 1999.

6 SEC. 407. FEDERAL GUARANTEE OF SCHOOL CONSTRUC7 TION BONDS BY FEDERAL HOME LOAN

8 BANKS.

9 (a) IN GENERAL.—Section 149(b)(3) (relating to ex10 ceptions) is amended by adding at the end the following

11 new subparagraph:

12 ‘‘(E) CERTAIN GUARANTEED SCHOOL CON13 STRUCTION BONDS.—Any bond issued as part

14 of an issue 95 percent or more of the net pro15 ceeds of which are used for public school con16 struction shall not be treated as federally guar17 anteed by reason of any guarantee by any Fed18 eral Home Loan Bank under the Federal Home

19 Loan Bank Act (12 U.S.C. 1421 et seq.), to the

20 extent the Federal Housing Finance Board allo21 cates authority to such Bank to so guarantee

22 such bond. For purposes of the preceding sen23 tence, the aggregate face amount of such bonds

24 which may be so guaranteed may not exceed

25 $500,000,000 in any calendar year.’’
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1 (b) EFFECTIVE DATE.—Subparagraph (E) of section

2 149(b)(3) of the Internal Revenue Code of 1986, as added

3 by the amendment made by subsection (a), shall take ef4 fect upon the enactment, after the date of the enactment

5 of this Act, of legislation authorizing the Federal Housing

6 Finance Board to allocate authority to Federal Home

7 Loan Banks to guarantee any bond described in such sub8 paragraph, but only if such legislation makes specific ref9 erence to such subparagraph.

10 TITLE V—HEALTH CARE TAX

11 RELIEF PROVISIONS

12 SEC. 501. DEDUCTION FOR HEALTH AND LONG-TERM CARE

13 INSURANCE COSTS OF INDIVIDUALS NOT

14 PARTICIPATING IN EMPLOYER-SUBSIDIZED

15 HEALTH PLANS.

16 (a) IN GENERAL.—Part VII of subchapter B of chap17 ter 1 is amended by redesignating section 222 as section

18 223 and by inserting after section 221 the following new

19 section:

20 ‘‘SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE

21 COSTS.

22 ‘‘(a) IN GENERAL.—In the case of an individual,

23 there shall be allowed as a deduction an amount equal to

24 the applicable percentage of the amount paid during the

25 taxable year for insurance which constitutes medical care
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1 for the taxpayer and the taxpayer’s spouse and depend2 ents.

3 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of

4 subsection (a), the applicable percentage shall be deter5 mined in accordance with the following table:

‘‘For taxable years beginning The applicable

in calendar year— percentage is—

2001, 2002, 2003 ........................................................................ 25

2004 and 2005 ............................................................................. 50

2006 and thereafter ..................................................................... 100.

6 ‘‘(c) LIMITATION BASED ON OTHER COVERAGE.—

7 ‘‘(1) COVERAGE UNDER CERTAIN SUBSIDIZED

8 EMPLOYER PLANS.—

9 ‘‘(A) IN GENERAL.—Subsection (a) shall

10 not apply to any taxpayer for any calendar

11 month for which the taxpayer participates in

12 any health plan maintained by any employer of

13 the taxpayer or of the spouse of the taxpayer if

14 50 percent or more of the cost of coverage

15 under such plan (determined under section

16 4980B and without regard to payments made

17 with respect to any coverage described in sub18 section (e)) is paid or incurred by the employer.

19 ‘‘(B) EMPLOYER CONTRIBUTIONS TO CAF20 ETERIA PLANS, FLEXIBLE SPENDING ARRANGE21 MENTS, AND MEDICAL SAVINGS ACCOUNTS.—

22 Employer contributions to a cafeteria plan, a

23 flexible spending or similar arrangement, or a
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1 medical savings account which are excluded

2 from gross income under section 106 shall be

3 treated for purposes of subparagraph (A) as

4 paid by the employer.

5 ‘‘(C) AGGREGATION OF PLANS OF EM6 PLOYER.—A health plan which is not otherwise

7 described in subparagraph (A) shall be treated

8 as described in such subparagraph if such plan

9 would be so described if all health plans of per10 sons treated as a single employer under sub11 sections (b), (c), (m), or (o) of section 414 were

12 treated as one health plan.

13 ‘‘(D) SEPARATE APPLICATION TO HEALTH

14 INSURANCE AND LONG-TERM CARE INSUR15 ANCE.—Subparagraphs (A) and (C) shall be

16 applied separately with respect to—

17 ‘‘(i) plans which include primarily cov18 erage for qualified long-term care services

19 or are qualified long-term care insurance

20 contracts, and

21 ‘‘(ii) plans which do not include such

22 coverage and are not such contracts.

23 ‘‘(2) COVERAGE UNDER CERTAIN FEDERAL

24 PROGRAMS.—
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1 ‘‘(A) IN GENERAL.—Subsection (a) shall

2 not apply to any amount paid for any coverage

3 for an individual for any calendar month if, as

4 of the first day of such month, the individual is

5 covered under any medical care program de6 scribed in—

7 ‘‘(i) title XVIII, XIX, or XXI of the

8 Social Security Act,

9 ‘‘(ii) chapter 55 of title 10, United

10 States Code,

11 ‘‘(iii) chapter 17 of title 38, United

12 States Code,

13 ‘‘(iv) chapter 89 of title 5, United

14 States Code, or

15 ‘‘(v) the Indian Health Care Improve16 ment Act.

17 ‘‘(B) EXCEPTIONS.—

18 ‘‘(i) QUALIFIED LONG-TERM CARE.—

19 Subparagraph (A) shall not apply to

20 amounts paid for coverage under a quali21 fied long-term care insurance contract.

22 ‘‘(ii) CONTINUATION COVERAGE OF

23 FEHBP.—Subparagraph (A)(iv) shall not

24 apply to coverage which is comparable to
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1 continuation coverage under section

2 4980B.

3 ‘‘(d) LONG-TERM CARE DEDUCTION LIMITED TO

4 QUALIFIED LONG-TERM CARE INSURANCE CON5 TRACTS.—In the case of a qualified long-term care insur6 ance contract, only eligible long-term care premiums (as

7 defined in section 213(d)(10)) may be taken into account

8 under subsection (a).

9 ‘‘(e) DEDUCTION NOT AVAILABLE FOR PAYMENT OF

10 ANCILLARY COVERAGE PREMIUMS.—Any amount paid as

11 a premium for insurance which provides for—

12 ‘‘(1) coverage for accidents, disability, dental

13 care, vision care, or a specified illness, or

14 ‘‘(2) making payments of a fixed amount per

15 day (or other period) by reason of being hospitalized.

16 shall not be taken into account under subsection (a).

17 ‘‘(f) SPECIAL RULES.—

18 ‘‘(1) COORDINATION WITH DEDUCTION FOR

19 HEALTH INSURANCE COSTS OF SELF-EMPLOYED IN20 DIVIDUALS.—The amount taken into account by the

21 taxpayer in computing the deduction under section

22 162(l) shall not be taken into account under this

23 section.

24 ‘‘(2) COORDINATION WITH MEDICAL EXPENSE

25 DEDUCTION.—The amount taken into account by
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1 the taxpayer in computing the deduction under this

2 section shall not be taken into account under section

3 213.

4 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

5 such regulations as may be appropriate to carry out this

6 section, including regulations requiring employers to re7 port to their employees and the Secretary such informa8 tion as the Secretary determines to be appropriate.’’

9 (b) DEDUCTION ALLOWED WHETHER OR NOT TAX10 PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a)

11 of section 62 is amended by inserting after paragraph (17)

12 the following new item:

13 ‘‘(18) HEALTH AND LONG-TERM CARE INSUR14 ANCE COSTS.—The deduction allowed by section

15 222.’’

16 (c) CLERICAL AMENDMENT.—The table of sections

17 for part VII of subchapter B of chapter 1 is amended by

18 striking the last item and inserting the following new

19 items:

‘‘Sec. 222. Health and long-term care insurance costs.

‘‘Sec. 223. Cross reference.’’

20 (c) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to taxable years beginning after

22 December 31, 2000.
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1 SEC. 502. LONG-TERM CARE INSURANCE PERMITTED TO BE

2 OFFERED UNDER CAFETERIA PLANS AND

3 FLEXIBLE SPENDING ARRANGEMENTS.

4 (a) CAFETERIA PLANS.—

5 (1) IN GENERAL.—Subsection (f) of section 125

6 (defining qualified benefits) is amended by inserting

7 before the period at the end ‘‘; except that such term

8 shall include the payment of premiums for any quali9 fied long-term care insurance contract (as defined in

10 section 7702B) to the extent the amount of such

11 payment does not exceed the eligible long-term care

12 premiums (as defined in section 213(d)(10)) for

13 such contract.’’

14 (b) FLEXIBLE SPENDING ARRANGEMENTS.—Section

15 106 (relating to contributions by employer to accident and

16 health plans) is amended by striking subsection (c).

17 (c) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to taxable years beginning after

19 December 31, 2000.

20 SEC. 503. ADDITIONAL PERSONAL EXEMPTION FOR TAX21 PAYER CARING FOR ELDERLY FAMILY MEM22 BER IN TAXPAYER’S HOME.

23 (a) IN GENERAL.—Section 151 (relating to allowance

24 of deductions for personal exemptions) is amended by add25 ing at the end redesignating subsection (e) as subsection
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1 (f) and by inserting after subsection (d) the following new

2 subsection:

3 ‘‘(e) ADDITIONAL EXEMPTION FOR CERTAIN ELDER4 LY FAMILY MEMBERS RESIDING WITH TAXPAYER.—

5 ‘‘(1) IN GENERAL.—An exemption of the ex6 emption amount for each qualified family member of

7 the taxpayer.

8 ‘‘(2) QUALIFIED FAMILY MEMBER.—For pur9 poses of this subsection, the term ‘qualified family

10 member’ means, with respect to any taxable year,

11 any individual—

12 ‘‘(A) who is—

13 ‘‘(i) the father or mother, or an ances14 tor of either, or

15 ‘‘(ii) a stepfather or stepmother,

16 of the taxpayer or of the taxpayer’s spouse or

17 former spouse,

18 ‘‘(B) who is a member for the entire tax19 able year of a household maintained by the tax20 payer, and

21 ‘‘(C) who has been certified, before the due

22 date for filing the return of tax for the taxable

23 year (without extensions), by a physician (as

24 defined in section 1861(r)(1) of the Social Se25 curity Act) as being an individual with long-
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1 term care needs described in paragraph (3) for

2 a period—

3 ‘‘(i) which is at least 180 consecutive

4 days, and

5 ‘‘(ii) a portion of which occurs within

6 the taxable year.

7 Such term shall not include any individual oth8 erwise meeting the requirements of the preceding sentence unless within the 391 9 ⁄2 month

10 period ending on such due date (or such other

11 period as the Secretary prescribes) a physician

12 (as so defined) has certified that such indi13 vidual meets such requirements.

14 ‘‘(3) INDIVIDUALS WITH LONG-TERM CARE

15 NEEDS.—An individual is described in this para16 graph if the individual—

17 ‘‘(A) is unable to perform (without sub18 stantial assistance from another individual) at

19 least 2 activities of daily living (as defined in

20 section 7702B(c)(2)(B)) due to a loss of func21 tional capacity, or

22 ‘‘(B) requires substantial supervision to

23 protect such individual from threats to health

24 and safety due to severe cognitive impairment

25 and is unable to perform, without reminding or
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1 cuing assistance, at least 1 activity of at least

2 1 activity of daily living (as so defined) or to

3 the extent provided in regulations prescribed by

4 the Secretary (in consultation with the Sec5 retary of Health and Human Services), is un6 able to engage in age appropriate activities.

7 ‘‘(4) SPECIAL RULES.—Rules similar to the

8 rules of paragraphs (1), (2), (3), (4), and (5) of sec9 tion 21(e) shall apply for purposes of this sub10 section.’’

11 (b) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to taxable years beginning after

13 December 31, 1999.

14 SEC. 504. INCLUSION OF CERTAIN VACCINES AGAINST

15 STREPTOCOCCUS PNEUMONIAE TO LIST OF

16 TAXABLE VACCINES; REDUCTION IN PER

17 DOSE TAX RATE.

18 (a) INCLUSION OF VACCINES.—

19 (1) IN GENERAL.—Section 4132(a)(1) (defining

20 taxable vaccine) is amended by adding at the end

21 the following new subparagraph:

22 ‘‘(L) Any conjugate vaccine against strep23 tococcus pneumoniae.’’

24 (2) EFFECTIVE DATE.—
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1 (A) SALES.—The amendment made by this

2 subsection shall apply to vaccine sales beginning

3 on the day after the date on which the Centers

4 for Disease Control makes a final recommenda5 tion for routine administration to children of

6 any conjugate vaccine against streptococcus

7 pneumoniae, but shall not take effect if sub8 section (c) does not take effect.

9 (B) DELIVERIES.—For purposes of sub10 paragraph (A), in the case of sales on or before

11 the date described in such subparagraph for

12 which delivery is made after such date, the de13 livery date shall be considered the sale date.

14 (b) REDUCTION IN PER DOSE TAX RATE.—

15 (1) IN GENERAL.—Section 4131(b)(1) (relating

16 to amount of tax) is amended by striking ‘‘75 cents’’

17 and inserting ‘‘25 cents’’.

18 (2) EFFECTIVE DATE.—

19 (A) SALES.—The amendment made by this

20 subsection shall apply to vaccine sales after De21 cember 31, 2004, but shall not take effect if

22 subsection (c) does not take effect.

23 (B) DELIVERIES.—For purposes of sub24 paragraph (A), in the case of sales on or before

25 the date described in such subparagraph for
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1 which delivery is made after such date, the de2 livery date shall be considered the sale date.

3 (3) LIMITATION ON CERTAIN CREDITS OR RE4 FUNDS.—For purposes of applying section 4132(b)

5 of the Internal Revenue Code of 1986 with respect

6 to any claim for credit or refund filed after August

7 31, 2004, the amount of tax taken into account shall

8 not exceed the tax computed under the rate in effect

9 on January 1, 2005.

10 (c) VACCINE TAX AND TRUST FUND AMEND11 MENTS.—

12 (1) Sections 1503 and 1504 of the Vaccine In13 jury Compensation Program Modification Act (and

14 the amendments made by such sections) are hereby

15 repealed.

16 (2) Subparagraph (A) of section 9510(c)(1) is

17 amended by striking ‘‘August 5, 1997’’ and insert18 ing ‘‘October 21, 1998’’.

19 (3) The amendments made by this subsection

20 shall take effect as if included in the provisions of

21 the Tax and Trade Relief Extension Act of 1998 to

22 which they relate.

23 (d) REPORT.—Not later than 1 year after the date

24 of the enactment of this Act, the Comptroller General of

25 the United States shall prepare and submit a report to
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1 the Committee on Ways and Means of the House of Rep2 resentatives and the Committee on Finance of the Senate

3 on the operation the Vaccine Injury Compensation Trust

4 Fund and on the adequacy of such Fund to meet future

5 claims made under the Vaccine Injury Compensation Pro6 gram.

7 TITLE VI—SMALL BUSINESS TAX

8 RELIEF PROVISIONS

9 SEC. 601. DEDUCTION FOR 100 PERCENT OF HEALTH IN10 SURANCE COSTS OF SELF-EMPLOYED INDI11 VIDUALS.

12 (a) IN GENERAL.—Paragraph (1) of section 162(l)

13 is amended to read as follows:

14 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case

15 of an individual who is an employee within the

16 meaning of section 401(c)(1), there shall be allowed

17 as a deduction under this section an amount equal

18 to 100 percent of the amount paid during the tax19 able year for insurance which constitutes medical

20 care for the taxpayer and the taxpayer’s spouse and

21 dependents.’’

22 (b) EFFECTIVE DATE.—The amendment made by

23 this section shall apply to taxable years beginning after

24 December 31, 1999.
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1 SEC. 602. INCREASE IN EXPENSE TREATMENT FOR SMALL

2 BUSINESSES.

3 (a) IN GENERAL.—Paragraph (1) of section 179(b)

4 (relating to dollar limitation) is amended to read as fol5 lows:

6 ‘‘(1) DOLLAR LIMITATION.—The aggregate cost

7 which may be taken into account under subsection

8 (a) for any taxable year shall not exceed $30,000.’’

9 (b) EFFECTIVE DATE.—The amendment made by

10 this section shall apply to taxable years beginning after

11 December 31, 1999.

12 SEC. 603. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.

13 Section 3301 (relating to rate of Federal unemploy14 ment tax) is amended—

15 (1) by striking ‘‘2007’’ and inserting ‘‘2004’’,

16 and

17 (2) by striking ‘‘2008’’ and inserting ‘‘2005’’.

18 SEC. 604. INCOME AVERAGING FOR FARMERS NOT TO IN19 CREASE ALTERNATIVE MINIMUM TAX LIABIL20 ITY.

21 (a) IN GENERAL.—Section 55(c) (defining regular

22 tax) is amended by redesignating paragraph (2) as para23 graph (3) and by inserting after paragraph (1) the fol24 lowing:

25 ‘‘(2) COORDINATION WITH INCOME AVERAGING

26 FOR FARMERS.—Solely for purposes of this section,
216

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1 section 1301 (relating to averaging of farm income)

2 shall not apply in computing the regular tax.’’

3 (b) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to taxable years beginning after

5 December 31, 1999.

6 SEC. 605. FARM AND RANCH RISK MANAGEMENT AC7 COUNTS.

8 (a) IN GENERAL.—Subpart C of part II of sub9 chapter E of chapter 1 (relating to taxable year for which

10 deductions taken) is amended by inserting after section

11 468B the following:

12 ‘‘SEC. 468C. FARM AND RANCH RISK MANAGEMENT AC13 COUNTS.

14 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi15 vidual engaged in an eligible farming business, there shall

16 be allowed as a deduction for any taxable year the amount

17 paid in cash by the taxpayer during the taxable year to

18 a Farm and Ranch Risk Management Account (herein19 after referred to as the ‘FARRM Account’).

20 ‘‘(b) LIMITATION.—The amount which a taxpayer

21 may pay into the FARRM Account for any taxable year

22 shall not exceed 20 percent of so much of the taxable in23 come of the taxpayer (determined without regard to this

24 section) which is attributable (determined in the manner
217

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1 applicable under section 1301) to any eligible farming

2 business.

3 ‘‘(c) ELIGIBLE FARMING BUSINESS.—For purposes

4 of this section, the term ‘eligible farming business’ means

5 any farming business (as defined in section 263A(e)(4))

6 which is not a passive activity (within the meaning of sec7 tion 469(c)) of the taxpayer.

8 ‘‘(d) FARRM ACCOUNT.—For purposes of this

9 section—

10 ‘‘(1) IN GENERAL.—The term ‘FARRM Ac11 count’ means a trust created or organized in the

12 United States for the exclusive benefit of the tax13 payer, but only if the written governing instrument

14 creating the trust meets the following requirements:

15 ‘‘(A) No contribution will be accepted for

16 any taxable year in excess of the amount al17 lowed as a deduction under subsection (a) for

18 such year.

19 ‘‘(B) The trustee is a bank (as defined in

20 section 408(n)) or another person who dem21 onstrates to the satisfaction of the Secretary

22 that the manner in which such person will ad23 minister the trust will be consistent with the re24 quirements of this section.
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1 ‘‘(C) The assets of the trust consist en2 tirely of cash or of obligations which have ade3 quate stated interest (as defined in section

4 1274(c)(2)) and which pay such interest not

5 less often than annually.

6 ‘‘(D) All income of the trust is distributed

7 currently to the grantor.

8 ‘‘(E) The assets of the trust will not be

9 commingled with other property except in a

10 common trust fund or common investment

11 fund.

12 ‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—

13 The grantor of a FARRM Account shall be treated

14 for purposes of this title as the owner of such Ac15 count and shall be subject to tax thereon in accord16 ance with subpart E of part I of subchapter J of

17 this chapter (relating to grantors and others treated

18 as substantial owners).

19 ‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—

20 ‘‘(1) IN GENERAL.—Except as provided in para21 graph (2), there shall be includible in the gross in22 come of the taxpayer for any taxable year—

23 ‘‘(A) any amount distributed from a

24 FARRM Account of the taxpayer during such

25 taxable year, and
219

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1 ‘‘(B) any deemed distribution under—

2 ‘‘(i) subsection (f)(1) (relating to de3 posits not distributed within 5 years),

4 ‘‘(ii) subsection (f)(2) (relating to ces5 sation in eligible farming business), and

6 ‘‘(iii) subparagraph (A) or (B) of sub7 section (f)(3) (relating to prohibited trans8 actions and pledging account as security).

9 ‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not

10 apply to—

11 ‘‘(A) any distribution to the extent attrib12 utable to income of the Account, and

13 ‘‘(B) the distribution of any contribution

14 paid during a taxable year to a FARRM Ac15 count to the extent that such contribution ex16 ceeds the limitation applicable under subsection

17 (b) if requirements similar to the requirements

18 of section 408(d)(4) are met.

19 For purposes of subparagraph (A), distributions

20 shall be treated as first attributable to income and

21 then to other amounts.

22 ‘‘(f) SPECIAL RULES.—

23 ‘‘(1) TAX ON DEPOSITS IN ACCOUNT WHICH

24 ARE NOT DISTRIBUTED WITHIN 5 YEARS.—
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1 ‘‘(A) IN GENERAL.—If, at the close of any

2 taxable year, there is a nonqualified balance in

3 any FARRM Account—

4 ‘‘(i) there shall be deemed distributed

5 from such Account during such taxable

6 year an amount equal to such balance, and

7 ‘‘(ii) the taxpayer’s tax imposed by

8 this chapter for such taxable year shall be

9 increased by 10 percent of such deemed

10 distribution.

11 The preceding sentence shall not apply if an

12 amount equal to such nonqualified balance is

13 distributed from such Account to the taxpayer

14 before the due date (including extensions) for

15 filing the return of tax imposed by this chapter

16 for such year (or, if earlier, the date the tax17 payer files such return for such year).

18 ‘‘(B) NONQUALIFIED BALANCE.—For pur19 poses of subparagraph (A), the term ‘non20 qualified balance’ means any balance in the Ac21 count on the last day of the taxable year which

22 is attributable to amounts deposited in such Ac23 count before the 4th preceding taxable year.

24 ‘‘(C) ORDERING RULE.—For purposes of

25 this paragraph, distributions from a FARRM
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1 Account (other than distributions of current in2 come) shall be treated as made from deposits in

3 the order in which such deposits were made, be4 ginning with the earliest deposits.

5 ‘‘(2) CESSATION IN ELIGIBLE FARMING BUSI6 NESS.—At the close of the first disqualification pe7 riod after a period for which the taxpayer was en8 gaged in an eligible farming business, there shall be

9 deemed distributed from the FARRM Account of the

10 taxpayer an amount equal to the balance in such Ac11 count (if any) at the close of such disqualification

12 period. For purposes of the preceding sentence, the

13 term ‘disqualification period’ means any period of 2

14 consecutive taxable years for which the taxpayer is

15 not engaged in an eligible farming business.

16 ‘‘(3) CERTAIN RULES TO APPLY.—Rules similar

17 to the following rules shall apply for purposes of this

18 section:

19 ‘‘(A) Section 220(f)(8) (relating to treat20 ment on death).

21 ‘‘(B) Section 408(e)(2) (relating to loss of

22 exemption of account where individual engages

23 in prohibited transaction).

24 ‘‘(C) Section 408(e)(4) (relating to effect

25 of pledging account as security).
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1 ‘‘(D) Section 408(g) (relating to commu2 nity property laws).

3 ‘‘(E) Section 408(h) (relating to custodial

4 accounts).

5 ‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—

6 For purposes of this section, a taxpayer shall be

7 deemed to have made a payment to a FARRM Ac8 count on the last day of a taxable year if such pay9 ment is made on account of such taxable year and

10 is made on or before the due date (without regard

11 to extensions) for filing the return of tax for such

12 taxable year.

13 ‘‘(5) INDIVIDUAL.—For purposes of this sec14 tion, the term ‘individual’ shall not include an estate

15 or trust.

16 ‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM17 PLOYMENT TAX.—The deduction allowable by reason

18 of subsection (a) shall not be taken into account in

19 determining an individual’s net earnings from self20 employment (within the meaning of section 1402(a))

21 for purposes of chapter 2.

22 ‘‘(g) REPORTS.—The trustee of a FARRM Account

23 shall make such reports regarding such Account to the

24 Secretary and to the person for whose benefit the Account

25 is maintained with respect to contributions, distributions,
223

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1 and such other matters as the Secretary may require

2 under regulations. The reports required by this subsection

3 shall be filed at such time and in such manner and fur4 nished to such persons at such time and in such manner

5 as may be required by such regulations.’’

6 (b) TAX ON EXCESS CONTRIBUTIONS.—

7 (1) Subsection (a) of section 4973 (relating to

8 tax on excess contributions to certain tax-favored ac9 counts and annuities), as amended by section

10 303(b)(1), is amended by striking ‘‘or’’ at the end

11 of paragraph (4), by redesignating paragraphs (4)

12 and (5) as paragraphs (5) and (6), respectively, and

13 by inserting after paragraph (3) the following:

14 ‘‘(4) a FARRM Account (within the meaning of

15 section 468C(d)), or’’.

16 (2) Section 4973, as amended by section

17 303(b)(2), is amended by adding at the end the fol18 lowing:

19 ‘‘(h) EXCESS CONTRIBUTIONS TO FARRM AC20 COUNTS.—For purposes of this section, in the case of a

21 FARRM Account (within the meaning of section

22 468C(d)), the term ‘excess contributions’ means the

23 amount by which the amount contributed for the taxable

24 year to the Account exceeds the amount which may be con25 tributed to the Account under section 468C(b) for such
224

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1 taxable year. For purposes of this subsection, any con2 tribution which is distributed out of the FARRM Account

3 in a distribution to which section 468C(e)(2)(B) applies

4 shall be treated as an amount not contributed.’’

5 (3) The section heading for section 4973 is

6 amended to read as follows:

7 ‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC8 COUNTS, ANNUITIES, ETC.’’

9 (4) The table of sections for chapter 43 is

10 amended by striking the item relating to section

11 4973 and inserting the following:

‘‘Sec. 4973. Excess contributions to certain accounts, annuities,

etc.’’

12 (c) TAX ON PROHIBITED TRANSACTIONS.—

13 (1) Subsection (c) of section 4975 (relating to

14 tax on prohibited transactions) is amended by add15 ing at the end the following:

16 ‘‘(6) SPECIAL RULE FOR FARRM ACCOUNTS.—

17 A person for whose benefit a FARRM Account

18 (within the meaning of section 468C(d)) is estab19 lished shall be exempt from the tax imposed by this

20 section with respect to any transaction concerning

21 such account (which would otherwise be taxable

22 under this section) if, with respect to such trans23 action, the account ceases to be a FARRM Account
225

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1 by reason of the application of section 468C(f)(3)(A)

2 to such account.’’

3 (2) Paragraph (1) of section 4975(e) is amend4 ed by redesignating subparagraphs (E) and (F) as

5 subparagraphs (F) and (G), respectively, and by in6 serting after subparagraph (D) the following:

7 ‘‘(E) a FARRM Account described in sec8 tion 468C(d),’’.

9 (d) FAILURE TO PROVIDE REPORTS ON FARRM AC10 COUNTS.—Paragraph (2) of section 6693(a) (relating to

11 failure to provide reports on certain tax-favored accounts

12 or annuities), as amended by section 303(d), is amended

13 by redesignating subparagraphs (C), (D), and (E) as sub14 paragraphs (D), (E), and (F), respectively, and by insert15 ing after subparagraph (B) the following:

16 ‘‘(C) section 468C(g) (relating to FARRM

17 Accounts),’’.

18 (e) CLERICAL AMENDMENT.—The table of sections

19 for subpart C of part II of subchapter E of chapter 1 is

20 amended by inserting after the item relating to section

21 468B the following:

‘‘Sec. 468C. Farm and Ranch Risk Management Accounts.’’

22 (f) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to taxable years beginning after

24 December 31, 2000.
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1 TITLE VII—ESTATE AND GIFT

2 TAX RELIEF PROVISIONS

3 Subtitle A—Reductions of Estate,

4 Gift, and Generation-Skipping

5 Transfer Taxes

6 SEC. 701. REDUCTIONS OF ESTATE, GIFT, AND GENERA7 TION-SKIPPING TRANSFER TAXES.

8 (a) MAXIMUM RATE OF TAX REDUCED TO 50 PER9 CENT.—The table contained in section 2001(c)(1) is

10 amended by striking the 2 highest brackets and inserting

11 the following:

Over $2,500,000 ............................ $1,025,800, plus 50% of the excess

over $2,500,000.’’

12 (b) REPEAL OF PHASEOUT OF GRADUATED

13 RATES.—Subsection (c) of section 2001 is amended by

14 striking paragraph (2).

15 (c) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to estates of decedents dying, and

17 gifts made, after December 31, 2000.

18 SEC. 702. UNIFIED CREDIT AGAINST ESTATE AND GIFT

19 TAXES REPLACED WITH UNIFIED EXEMPTION

20 AMOUNT.

21 (a) IN GENERAL.—

22 (1) ESTATE TAX.—Part IV of subchapter A of

23 chapter 11 is amended by inserting after section

24 2051 the following new section:
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1 ‘‘SEC. 2052. EXEMPTION.

2 ‘‘(a) IN GENERAL.—For purposes of the tax imposed

3 by section 2001, the value of the taxable estate shall be

4 determined by deducting from the value of the gross estate

5 an amount equal to the excess (if any) of—

6 ‘‘(1) the exemption amount for the calendar

7 year in which the decedent died, over

8 ‘‘(2) the sum of—

9 ‘‘(A) the aggregate amount allowed as an

10 exemption under section 2521 with respect to

11 gifts made by the decedent after December 31,

12 2003, and

13 ‘‘(B) the aggregate amount of gifts made

14 by the decedent for which credit was allowed by

15 section 2505 (as in effect on the day before the

16 date of the enactment of the Taxpayer Refund

17 Act of 1999).

18 Gifts which are includible in the gross estate of the dece19 dent shall not be taken into account in determining the

20 amounts under paragraph (2).

21 ‘‘(b) EXEMPTION AMOUNT.—For purposes of sub22 section (a), the term ‘exemption amount’ means the

23 amount determined in accordance with the following table:

‘‘In the case of The exemption

calendar year: amount is:

2004 ....................................................................... $850,000

2005 ....................................................................... $950,000
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2006 ....................................................................... $1,000,000

2007 or thereafter ................................................. $1,500,000.’’

1 (2) GIFT TAX.—Subchapter C of chapter 12

2 (relating to deductions) is amended by inserting be3 fore section 2522 the following new section:

4 ‘‘SEC. 2521. EXEMPTION.

5 ‘‘(a) IN GENERAL.—In computing taxable gifts for

6 any calendar year, there shall be allowed as a deduction

7 in the case of a citizen or resident of the United States

8 an amount equal to the excess of—

9 ‘‘(1) the exemption amount determined under

10 section 2052 for such calendar year, over

11 ‘‘(2) the sum of—

12 ‘‘(A) the aggregate amount allowed as an

13 exemption under this section for all preceding

14 calendar years after 2003, and

15 ‘‘(B) the aggregate amount of gifts for

16 which credit was allowed by section 2505 (as in

17 effect on the day before the date of the enact18 ment of the Taxpayer Refund Act of 1999).’’

19 (b) REPEAL OF UNIFIED CREDITS.—

20 (1) Section 2010 (relating to unified credit

21 against estate tax) is hereby repealed.

22 (2) Section 2505 (relating to unified credit

23 against gift tax) is hereby repealed.

24 (c) CONFORMING AMENDMENTS.—
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1 (1)(A) Subparagraph (B) of section 2001(b)(1)

2 is amended by inserting before the comma ‘‘reduced

3 by the amount described in section 2052(a)(2)’’.

4 (B) Subsection (b) of section 2001 is amended

5 by adding at the end the following new sentence:

6 ‘‘For purposes of paragraph (2), the amount of the

7 tax payable under chapter 12 shall be determined

8 without regard to the credit provided by section

9 2505 (as in effect on the day before the date of the

10 enactment of the Taxpayer Refund Act of 1999).’’

11 (2) Subsection (f) of section 2011 is amended

12 by striking ‘‘, reduced by the amount of the unified

13 credit provided by section 2010’’.

14 (3) Subsection (a) of section 2012 is amended

15 by striking ‘‘and the unified credit provided by sec16 tion 2010’’.

17 (4) Subsection (b) of section 2013 is amended

18 by inserting before the period at the end of the first

19 sentence ‘‘and increased by the exemption allowed

20 under section 2052 or 2106(a)(4) (or the cor21 responding provisions of prior law) in determining

22 the taxable estate of the transferor for purposes of

23 the estate tax’’.

24 (5) Subparagraph (A) of section 2013(c)(1) is

25 amended by striking ‘‘2010,’’.
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1 (6) Paragraph (2) of section 2014(b) is amend2 ed by striking ‘‘2010,’’.

3 (7) Clause (ii) of section 2056A(b)(12)(C) is

4 amended to read as follows:

5 ‘‘(ii) to treat any reduction in the tax

6 imposed by paragraph (1)(A) by reason of

7 the credit allowable under section 2010 (as

8 in effect on the day before the date of the

9 enactment of the Taxpayer Refund Act of

10 1999) or the exemption allowable under

11 section 2052 with respect to the decedent

12 as such a credit or exemption (as the case

13 may be) allowable to such surviving spouse

14 for purposes of determining the amount of

15 the exemption allowable under section

16 2521 with respect to taxable gifts made by

17 the surviving spouse during the year in

18 which the spouse becomes a citizen or any

19 subsequent year,’’.

20 (8) Section 2102 is amended by striking sub21 section (c).

22 (9) Subsection (a) of section 2106 is amended

23 by adding at the end the following new paragraph:

24 ‘‘(4) EXEMPTION.—
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1 ‘‘(A) IN GENERAL.—An exemption of

2 $60,000.

3 ‘‘(B) RESIDENTS OF POSSESSIONS OF THE

4 UNITED STATES.—In the case of a decedent

5 who is considered to be a nonresident not a cit6 izen of the United States under section 2209,

7 the exemption under this paragraph shall be the

8 greater of—

9 ‘‘(i) $60,000, or

10 ‘‘(ii) that proportion of $175,000

11 which the value of that part of the dece12 dent’s gross estate which at the time of his

13 death is situated in the United States

14 bears to the value of his entire gross estate

15 wherever situated.

16 ‘‘(C) SPECIAL RULES.—

17 ‘‘(i) COORDINATION WITH TREA18 TIES.—To the extent required under any

19 treaty obligation of the United States, the

20 exemption allowed under this paragraph

21 shall be equal to the amount which bears

22 the same ratio to the exemption amount

23 under section 2052 (for the calendar year

24 in which the decedent died) as the value of

25 the part of the decedent’s gross estate
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1 which at the time of his death is situated

2 in the United States bears to the value of

3 his entire gross estate wherever situated.

4 For purposes of the preceding sentence,

5 property shall not be treated as situated in

6 the United States if such property is ex7 empt from the tax imposed by this sub8 chapter under any treaty obligation of the

9 United States.

10 ‘‘(ii) COORDINATION WITH GIFT TAX

11 EXEMPTION AND UNIFIED CREDIT.—If an

12 exemption has been allowed under section

13 2521 (or a credit has been allowed under

14 section 2505 as in effect on the day before

15 the date of the enactment of the Taxpayer

16 Refund Act of 1999) with respect to any

17 gift made by the decedent, each dollar

18 amount contained in subparagraph (A) or

19 (B) or the exemption amount applicable

20 under clause (i) of this subparagraph

21 (whichever applies) shall be reduced by the

22 exemption so allowed under 2521 (or, in

23 the case of such a credit, by the amount of

24 the gift for which the credit was so al25 lowed).’’
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1 (10) Subsection (c) of section 2107 is

2 amended—

3 (A) by striking paragraph (1) and by re4 designating paragraphs (2) and (3) as para5 graphs (1) and (2), respectively, and

6 (B) by striking the second sentence of

7 paragraph (2) (as so redesignated).

8 (11) Section 2206 is amended by striking ‘‘the

9 taxable estate’’ in the first sentence and inserting

10 ‘‘the sum of the taxable estate and the amount of

11 the exemption allowed under section 2052 or

12 2106(a)(4) in computing the taxable estate’’.

13 (12) Section 2207 is amended by striking ‘‘the

14 taxable estate’’ in the first sentence and inserting

15 ‘‘the sum of the taxable estate and the amount of

16 the exemption allowed under section 2052 or

17 2106(a)(4) in computing the taxable estate’’.

18 (13) Subparagraph (B) of section 2207B(a)(1)

19 is amended to read as follows:

20 ‘‘(B) the sum of the taxable estate and the

21 amount of the exemption allowed under section

22 2052 or 2106(a)(4) in computing the taxable

23 estate.’’
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1 (14) Subsection (a) of section 2503 is amended

2 by striking ‘‘section 2522’’ and inserting ‘‘section

3 2521’’.

4 (15) Paragraph (1) of section 6018(a) is

5 amended by striking ‘‘the applicable exclusion

6 amount’’ and inserting ‘‘the exemption amount

7 under section 2052 for the calendar year which in8 cludes the date of death’’.

9 (16) Subparagraph (A) of section 6601(j)(2) is

10 amended to read as follows:

11 ‘‘(A)(i) the amount of the tax which would

12 be imposed by chapter 11 on an amount of tax13 able estate equal to the sum of $1,000,000 and

14 the exemption amount allowable under section

15 2052, reduced by

16 ‘‘(ii) the amount of tax which would be so

17 imposed if the taxable estate equaled such ex18 emption amount, or’’.

19 (17) The table of sections for part II of sub20 chapter A of chapter 11 is amended by striking the

21 item relating to section 2010.

22 (18) The table of sections for subchapter A of

23 chapter 12 is amended by striking the item relating

24 to section 2505.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section—

3 (1) insofar as they relate to the tax imposed by

4 chapter 11 of the Internal Revenue Code of 1986,

5 shall apply to estates of decedents dying after De6 cember 31, 2003, and

7 (2) insofar as they relate to the tax imposed by

8 chapter 12 of such Code, shall apply to gifts made

9 after December 31, 2003.

10 Subtitle B—Conservation

11 Easements

12 SEC. 711. EXPANSION OF ESTATE TAX RULE FOR CON13 SERVATION EASEMENTS.

14 (a) WHERE LAND IS LOCATED.—

15 (1) IN GENERAL.—Clause (i) of section

16 2031(c)(8)(A) (defining land subject to a qualified

17 conservation easement) is amended by striking ‘‘25

18 miles’’ both places it appears and inserting ‘‘50

19 miles’’.

20 (2) EFFECTIVE DATE.—The amendments made

21 by this subsection shall apply to estates of decedents

22 dying after December 31, 1999.

23 (b) CLARIFICATION OF DATE FOR DETERMINING

24 VALUE OF LAND AND EASEMENT.—
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1 (1) IN GENERAL.—Section 2031(c)(2) (defining

2 applicable percentage) is amended by adding at the

3 end the following new sentence: ‘‘The values taken

4 into account under the preceding sentence shall be

5 such values as of the date of the contribution re6 ferred to in paragraph (8)(B).’’

7 (2) EFFECTIVE DATE.—The amendment made

8 by this subsection shall apply to estates of decedents

9 dying after December 31, 1997.

10 Subtitle C—Annual Gift Exclusion

11 SEC. 721. INCREASE IN ANNUAL GIFT EXCLUSION.

12 (a) IN GENERAL.—Section 2503(b) (relating to ex13 clusions from gifts) is amended—

14 (1) by striking ‘‘$10,000’’ in paragraph (1) and

15 inserting ‘‘applicable dollar amount’’, and

16 (2) by striking paragraph (2) and inserting the

17 following new paragraph:

18 ‘‘(2) APPLICABLE DOLLAR AMOUNT.—For pur19 poses of paragraph (1), the applicable dollar amount

20 shall be determined in accordance with the following

21 table:

‘‘For gifts made— The applicable dollar amount

is—

After 2000 but before 2002 ..................................................... $12,000

After 2001 but before 2003 ..................................................... $13,500

After 2002 but before 2004 ..................................................... $15,000

After 2003 but before 2005 ..................................................... $16,500

After 2004 but before 2006 ..................................................... $18,000

After 2005 ................................................................................ $20,000.’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to gifts made after December 31,

3 2000.

4 Subtitle D—Simplification of

5 Generation-Skipping Transfer Tax

6 SEC. 731. RETROACTIVE ALLOCATION OF GST EXEMPTION.

7 (a) IN GENERAL.—Section 2632 (relating to special

8 rules for allocation of GST exemption) is amended by re9 designating subsection (c) as subsection (d) and by insert10 ing after subsection (b) the following new subsection:

11 ‘‘(c) RETROACTIVE ALLOCATIONS.—

12 ‘‘(1) IN GENERAL.—If—

13 ‘‘(A) a non-skip person has an interest or

14 a future interest in a trust to which any trans15 fer has been made,

16 ‘‘(B) such person—

17 ‘‘(i) is a lineal descendant of a grand18 parent of the transferor or of a grand19 parent of the transferor’s spouse, and

20 ‘‘(ii) is assigned to a generation below

21 the generation assignment of the trans22 feror, and

23 ‘‘(C) such person predeceases the trans24 feror,
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1 then the transferor may make an allocation of any

2 of such transferor’s unused GST exemption to any

3 previous transfer or transfers to the trust on a

4 chronological basis.

5 ‘‘(2) SPECIAL RULES.—If the allocation under

6 paragraph (1) by the transferor is made on a gift

7 tax return filed on or before the date prescribed by

8 section 6075(b) for gifts made within the calendar

9 year within which the non-skip person’s death

10 occurred—

11 ‘‘(A) the value of such transfer or trans12 fers for purposes of section 2642(a) shall be de13 termined as if such allocation had been made

14 on a timely filed gift tax return for each cal15 endar year within which each transfer was

16 made,

17 ‘‘(B) such allocation shall be effective im18 mediately before such death, and

19 ‘‘(C) the amount of the transferor’s unused

20 GST exemption available to be allocated shall

21 be determined immediately before such death.

22 ‘‘(3) FUTURE INTEREST.—For purposes of this

23 subsection, a person has a future interest in a trust

24 if the trust may permit income or corpus to be paid

25 to such person on a date or dates in the future.’’
239

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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to deaths of non-skip persons oc3 curring after the date of the enactment of this Act.

4 SEC. 732. SEVERING OF TRUSTS.

5 (a) IN GENERAL.—Subsection (a) of section 2642

6 (relating to inclusion ratio) is amended by adding at the

7 end the following new paragraph:

8 ‘‘(3) SEVERING OF TRUSTS.—

9 ‘‘(A) IN GENERAL.—If a trust is severed in

10 a qualified severance, the trusts resulting from

11 such severance shall be treated as separate

12 trusts thereafter for purposes of this chapter.

13 ‘‘(B) QUALIFIED SEVERANCE.—For pur14 poses of subparagraph (A)—

15 ‘‘(i) IN GENERAL.—The term ‘quali16 fied severance’ means the division of a sin17 gle trust and the creation (by any means

18 available under the governing instrument

19 or under local law) of 2 or more trusts if—

20 ‘‘(I) the single trust was divided

21 on a fractional basis, and

22 ‘‘(II) the terms of the new trusts,

23 in the aggregate, provide for the same

24 succession of interests of beneficiaries

25 as are provided in the original trust.
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1 ‘‘(ii) TRUSTS WITH INCLUSION RATIO

2 GREATER THAN ZERO.—If a trust has an

3 inclusion ratio of greater than zero and

4 less than 1, a severance is a qualified sev5 erance only if the single trust is divided

6 into 2 trusts, one of which receives a frac7 tional share of the total value of all trust

8 assets equal to the applicable fraction of

9 the single trust immediately before the sev10 erance. In such case, the trust receiving

11 such fractional share shall have an inclu12 sion ratio of zero and the other trust shall

13 have an inclusion ratio of 1.

14 ‘‘(iii) REGULATIONS.—The term

15 ‘qualified severance’ includes any other

16 severance permitted under regulations pre17 scribed by the Secretary.

18 ‘‘(C) TIMING AND MANNER OF

19 SEVERANCES.—A severance pursuant to this

20 paragraph may be made at any time. The Sec21 retary shall prescribe by forms or regulations

22 the manner in which the qualified severance

23 shall be reported to the Secretary.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to severances after the date of the

3 enactment of this Act.

4 SEC. 733. MODIFICATION OF CERTAIN VALUATION RULES.

5 (a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR

6 DEEMED ALLOCATION MADE.—Paragraph (1) of section

7 2642(b) (relating to valuation rules, etc.) is amended to

8 read as follows:

9 ‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN

10 FILED OR DEEMED ALLOCATION MADE.—If the allo11 cation of the GST exemption to any transfers of

12 property is made on a gift tax return filed on or be13 fore the date prescribed by section 6075(b) for such

14 transfer or is deemed to be made under section

15 2632(b)(1)—

16 ‘‘(A) the value of such property for pur17 poses of subsection (a) shall be its value as fi18 nally determined for purposes of chapter 12

19 (within the meaning of section 2001(f)(2)), or,

20 in the case of an allocation deemed to have been

21 made at the close of an estate tax inclusion pe22 riod, its value at the time of the close of the es23 tate tax inclusion period, and

24 ‘‘(B) such allocation shall be effective on

25 and after the date of such transfer, or, in the
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1 case of an allocation deemed to have been made

2 at the close of an estate tax inclusion period, on

3 and after the close of such estate tax inclusion

4 period.’’

5 (b) TRANSFERS AT DEATH.—Subparagraph (A) of

6 section 2642(b)(2) is amended to read as follows:

7 ‘‘(A) TRANSFERS AT DEATH.—If property

8 is transferred as a result of the death of the

9 transferor, the value of such property for pur10 poses of subsection (a) shall be its value as fi11 nally determined for purposes of chapter 11; ex12 cept that, if the requirements prescribed by the

13 Secretary respecting allocation of post-death

14 changes in value are not met, the value of such

15 property shall be determined as of the time of

16 the distribution concerned.’’

17 (c) EFFECTIVE DATE.—The amendments made by

18 this section shall take effect as if included in the amend19 ments made by section 1431 of the Tax Reform Act of

20 1986.

21 SEC. 734. RELIEF PROVISIONS.

22 (a) IN GENERAL.—Section 2642 is amended by add23 ing at the end the following new subsection:

24 ‘‘(g) RELIEF PROVISIONS.—

25 ‘‘(1) RELIEF FOR LATE ELECTIONS.—
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1 ‘‘(A) IN GENERAL.—The Secretary shall by

2 regulation prescribe such circumstances and

3 procedures under which extensions of time will

4 be granted to make—

5 ‘‘(i) an allocation of GST exemption

6 described in paragraph (1) or (2) of sub7 section (b), and

8 ‘‘(ii) an election under section

9 2632(b)(3).

10 Such regulations shall include procedures for

11 requesting comparable relief with respect to

12 transfers made before the date of enactment of

13 this paragraph.

14 ‘‘(B) BASIS FOR DETERMINATIONS.—In

15 determining whether to grant relief under this

16 paragraph, the Secretary shall take into ac17 count all relevant circumstances, including evi18 dence of intent contained in the trust instru19 ment or instrument of transfer and such other

20 factors as the Secretary deems relevant. For

21 purposes of determining whether to grant relief

22 under this paragraph, the time for making the

23 allocation (or election) shall be treated as if not

24 expressly prescribed by statute.
244

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1 ‘‘(2) SUBSTANTIAL COMPLIANCE.—An alloca2 tion of GST exemption under section 2632 that

3 demonstrates an intent to have the lowest possible

4 inclusion ratio with respect to a transfer or a trust

5 shall be deemed to be an allocation of so much of

6 the transferor’s unused GST exemption as produces

7 the lowest possible inclusion ratio. In determining

8 whether there has been substantial compliance, all

9 relevant circumstances shall be taken into account,

10 including evidence of intent contained in the trust

11 instrument or instrument of transfer and such other

12 factors as the Secretary deems relevant.’’

13 (b) EFFECTIVE DATES.—

14 (1) RELIEF FOR LATE ELECTIONS.—Section

15 2642(g)(1) (as added by subsection (a)) shall apply

16 to requests pending on, or filed after, the date of the

17 enactment of this Act.

18 (2) SUBSTANTIAL COMPLIANCE.—Section

19 2642(g)(2) (as so added) shall take effect on the

20 date of the enactment of this Act and shall apply to

21 allocations made prior to such date for purposes of

22 determining the tax consequences of generation-skip23 ping transfers with respect to which the period of

24 time for filing claims for refund has not expired. No

25 implication is intended with respect to the avail-
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•S 1429 PCS

1 ability of relief for late elections or the application

2 of a rule of substantial compliance before the enact3 ment of this amendment.

4 TITLE VIII—TAX EXEMPT

5 ORGANIZATIONS PROVISIONS

6 SEC. 801. EXEMPTION FROM INCOME TAX FOR STATE-CRE7 ATED ORGANIZATIONS PROVIDING PROP8 ERTY AND CASUALTY INSURANCE FOR PROP9 ERTY FOR WHICH SUCH COVERAGE IS OTH10 ERWISE UNAVAILABLE.

11 (a) IN GENERAL.—Subsection (c) of section 501 (re12 lating to exemption from tax on corporations, certain

13 trusts, etc.) is amended by adding at the end the following

14 new paragraph:

15 ‘‘(28)(A) Any association created before Janu16 ary 1, 1999, by State law and organized and oper17 ated exclusively to provide property and casualty in18 surance coverage for property located within the

19 State for which the State has determined that cov20 erage in the authorized insurance market is limited

21 or unavailable at reasonable rates, if—

22 ‘‘(i) no part of the net earnings of which

23 inures to the benefit of any private shareholder

24 or individual,
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•S 1429 PCS

1 ‘‘(ii) except as provided in clause (v), no

2 part of the assets of which may be used for, or

3 diverted to, any purpose other than—

4 ‘‘(I) to satisfy, in whole or in part, the

5 liability of the association for, or with re6 spect to, claims made on policies written

7 by the association,

8 ‘‘(II) to invest in investments author9 ized by applicable law,

10 ‘‘(III) to pay reasonable and nec11 essary administration expenses in connec12 tion with the establishment and operation

13 of the association and the processing of

14 claims against the association, or

15 ‘‘(IV) to make remittances pursuant

16 to State law to be used by the State to

17 provide for the payment of claims on poli18 cies written by the association, purchase

19 reinsurance covering losses under such

20 policies, or to support governmental pro21 grams to prepare for or mitigate the ef22 fects of natural catastrophic events,

23 ‘‘(iii) the State law governing the associa24 tion permits the association to levy assessments

25 on insurance companies authorized to sell prop-
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•S 1429 PCS

1 erty and casualty insurance in the State, or on

2 property and casualty insurance policyholders

3 with insurable interests in property located in

4 the State to fund deficits of the association, in5 cluding the creation of reserves,

6 ‘‘(iv) the plan of operation of the associa7 tion is subject to approval by the chief executive

8 officer or other executive branch official of the

9 State, by the State legislature, or both, and

10 ‘‘(v) the assets of the association revert

11 upon dissolution to the State, the State’s des12 ignee, or an entity designated by the State law

13 governing the association, or State law does not

14 permit the dissolution of the association.

15 ‘‘(B)(i) An entity described in clause (ii) shall

16 be disregarded as a separate entity and treated as

17 part of the association described in subparagraph

18 (A) from which it receives remittances described in

19 clause (ii) if an election is made within 30 days after

20 the date that such association is determined to be

21 exempt from tax.

22 ‘‘(ii) An entity is described in this clause if it

23 is an entity or fund created before January 1, 1999,

24 pursuant to State law and organized and operated

25 exclusively to receive, hold, and invest remittances
248

•S 1429 PCS

1 from an association described in subparagraph (A)

2 and exempt from tax under subsection (a) and to

3 make disbursements to pay claims on insurance con4 tracts issued by such association, and to make dis5 bursements to support governmental programs to

6 prepare for or mitigate the effects of natural cata7 strophic events.’’

8 (b) UNRELATED BUSINESS TAXABLE INCOME.—

9 Subsection (a) of section 512 (relating to unrelated busi10 ness taxable income) is amended by adding at the end the

11 following new paragraph:

12 ‘‘(6) SPECIAL RULE APPLICABLE TO ORGANIZA13 TIONS DESCRIBED IN SECTION 501(C)(28).—In the

14 case of an organization described in section

15 501(c)(28), the term ‘unrelated business taxable in16 come’ means taxable income for a taxable year com17 puted without the application of section 501(c)(28)

18 if, at the end of the immediately preceding taxable

19 year, the organization’s net equity exceeded 15 per20 cent of the total coverage in force under insurance

21 contracts issued by the organization and outstanding

22 at the end of such preceding year.’’

23 (c) TRANSITIONAL RULE.—No income or gain shall

24 be recognized by an association as a result of a change

25 in status to that of an association described by section
249

•S 1429 PCS

1 501(c)(28) of the Internal Revenue Code of 1986, as

2 amended by subsection (a).

3 (d) EFFECTIVE DATE.—The amendment made by

4 subsection (a) shall apply to taxable years beginning after

5 December 31, 1999.

6 SEC. 802. MODIFICATIONS TO SECTION 512(b)(13).

7 (a) IN GENERAL.—Paragraph (13) of section 512(b)

8 is amended by redesignating subparagraph (E) as sub9 paragraph (F) and by inserting after subparagraph (D)

10 the following new paragraph:

11 ‘‘(E) PARAGRAPH TO APPLY ONLY TO EX12 CESS PAYMENTS.—

13 ‘‘(i) IN GENERAL.—Subparagraph (A)

14 shall apply only to the portion of a speci15 fied payment received by the controlling

16 organization which exceeds the amount

17 which would have been paid if such pay18 ment met the requirements prescribed

19 under section 482.

20 ‘‘(ii) ADDITION TO TAX FOR VALU21 ATION MISSTATEMENTS.—The tax imposed

22 by this chapter on the controlling organiza23 tion shall be increased by an amount equal

24 to 20 percent of such excess.’’

25 (b) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendment made by

2 this section shall apply to payments received or ac3 crued after December 31, 1999.

4 (2) PAYMENTS SUBJECT TO BINDING CONTRACT

5 TRANSITION RULE.—If the amendments made by

6 section 1041 of the Taxpayer Relief Act of 1997 do

7 not apply to any amount received or accrued after

8 the date of the enactment of this Act under any con9 tract described in subsection (b)(2) of such section,

10 such amendments also shall not apply to amounts

11 received or accrued under such contract before Jan12 uary 1, 2000.

13 SEC. 803. SIMPLIFICATION OF LOBBYING EXPENDITURE

14 LIMITATION.

15 (a) REPEAL OF GRASSROOTS EXPENDITURE

16 LIMIT.—Paragraph (1) of section 501(h) (relating to ex17 penditures by public charities to influence legislation) is

18 amended to read as follows:

19 ‘‘(1) GENERAL RULE.—In the case of an orga20 nization to which this subsection applies, exemption

21 from taxation under subsection (a) shall be denied

22 because a substantial part of the activities of such

23 organization consists of carrying on propaganda, or

24 otherwise attempting, to influence legislation, but

25 only if such organization normally makes lobbying
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•S 1429 PCS

1 expenditures in excess of the lobbying ceiling amount

2 for such organization for each taxable year.’’

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 501(h)(2) is amended by striking

5 subparagraphs (C) and (D).

6 (2) Section 4911(b) is amended to read as fol7 lows:

8 ‘‘(b) EXCESS LOBBYING EXPENDITURES.—For pur9 poses of this section, the term ‘excess lobbying expendi10 tures’ means, for a taxable year, the amount by which the

11 lobbying expenditures made by the organization during the

12 taxable year exceed the lobbying nontaxable amount for

13 such organization for such taxable year.’’

14 (3) Section 4911(c) is amended by striking

15 paragraphs (3) and (4).

16 (4) Paragraph (1)(A) of section 4911(f) is

17 amended by striking ‘‘limits of section 501(h)(1)

18 have’’ and inserting ‘‘limit of section 501(h)(1)

19 has’’.

20 (5) Paragraph (1)(C) of section 4911(f) is

21 amended by striking ‘‘limits of section 501(h)(1)

22 are’’ and inserting ‘‘limit of section 501(h)(1) is’’.

23 (6) Paragraphs (4)(A) and (4)(B) of section

24 4911(f) are each amended by striking ‘‘limits of sec-
252

•S 1429 PCS

1 tion 501(h)(1)’’ and inserting ‘‘limit of section

2 501(h)(1)’’.

3 (7) Paragraph (8) of section 6033(b) (relating

4 to certain organizations described in section

5 501(c)(3)) is amended by inserting ‘‘and’’ at the end

6 of subparagraph (A) and by striking subparagraphs

7 (C) and (D).

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to taxable years beginning after

10 December 31, 1999.

11 SEC. 804. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE12 TIREMENT ACCOUNTS FOR CHARITABLE

13 PURPOSES.

14 (a) IN GENERAL.—Subsection (d) of section 408 (re15 lating to individual retirement accounts) is amended by

16 adding at the end the following new paragraph:

17 ‘‘(8) DISTRIBUTIONS FOR CHARITABLE PUR18 POSES.—

19 ‘‘(A) IN GENERAL.—In the case of a quali20 fied charitable distribution from an individual

21 retirement account to an organization described

22 in section 170(c), no amount shall be includible

23 in the gross income of the distributee.
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•S 1429 PCS

1 ‘‘(B) SPECIAL RULES RELATING TO CHARI2 TABLE REMAINDER TRUSTS, POOLED INCOME

3 FUNDS, AND CHARITABLE GIFT ANNUITIES.—

4 ‘‘(i) IN GENERAL.—In the case of a

5 qualified charitable distribution from an

6 individual retirement account—

7 ‘‘(I) to a charitable remainder

8 annuity trust or a charitable remain9 der unitrust (as such terms are de10 fined in section 664(d)),

11 ‘‘(II) to a pooled income fund (as

12 defined in section 642(c)(5)), or

13 ‘‘(III) for the issuance of a chari14 table gift annuity (as defined in sec15 tion 501(m)(5)),

16 no amount shall be includible in gross in17 come of the distributee. The preceding sen18 tence shall apply only if no person holds

19 any interest in the amounts in the trust,

20 fund, or annuity attributable to such dis21 tribution other than one or more of the fol22 lowing: the individual for whose benefit

23 such account is maintained, the spouse of

24 such individual, or any organization de25 scribed in section 170(c).
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1 ‘‘(ii) DETERMINATION OF INCLUSION

2 OF AMOUNTS DISTRIBUTED.—In deter3 mining the amount includible in the gross

4 income of the distributee of a distribution

5 from a trust described in clause (i)(I) or

6 an annuity (as described in clause (i)(III)),

7 the portion of any qualified charitable dis8 tribution to such trust or for such annuity

9 which would (but for this subparagraph)

10 have been includible in gross income—

11 ‘‘(I) in the case of any such

12 trust, shall be treated as income de13 scribed in section 664(b)(1), or

14 ‘‘(II) in the case of any such an15 nuity, shall not be treated as an in16 vestment in the contract.

17 ‘‘(iii) NO INCLUSION FOR DISTRIBU18 TION TO POOLED INCOME FUND.—No

19 amount shall be includible in the gross in20 come of a pooled income fund (as so de21 fined) by reason of a qualified charitable

22 distribution to such fund.

23 ‘‘(C) QUALIFIED CHARITABLE DISTRIBU24 TION.—For purposes of this paragraph, the

25 term ‘qualified charitable distribution’ means
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1 any distribution from an individual retirement

2 account—

3 ‘‘(i) which is made on or after the

4 date that the individual for whose benefit

5 the account is maintained has attained age

701 6 ⁄2, and

7 ‘‘(ii) which is a charitable contribution

8 (as defined in section 170(c)) made di9 rectly from the account to—

10 ‘‘(I) an organization described in

11 section 170(c), or

12 ‘‘(II) a trust, fund, or annuity

13 described in subparagraph (B).

14 ‘‘(D) DENIAL OF DEDUCTION.—The

15 amount allowable as a deduction to the tax16 payer for the taxable year under section 170 for

17 qualified charitable distributions shall be re18 duced (but not below zero) by the sum of the

19 amounts of the qualified charitable distributions

20 during such year which (but for this paragraph)

21 would have been includible in the gross income

22 of the taxpayer for such year.’’

23 (b) EFFECTIVE DATE.—The amendment made by

24 subsection (a) shall apply to taxable years beginning after

25 December 31, 2000.
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1 SEC. 805. MILEAGE REIMBURSEMENTS TO CHARITABLE

2 VOLUNTEERS EXCLUDED FROM GROSS IN3 COME.

4 (a) IN GENERAL.—Part III of subchapter B of chap5 ter 1 is amended by inserting after section 138 the fol6 lowing new section:

7 ‘‘SEC. 138A. MILEAGE REIMBURSEMENTS TO CHARITABLE

8 VOLUNTEERS.

9 ‘‘(a) IN GENERAL.—Gross income of an individual

10 does not include amounts received, from an organization

11 described in section 170(c), as reimbursement of operating

12 expenses with respect to use of a passenger automobile

13 for the benefit of such organization for which a deduction

14 would otherwise be allowable under section 170. The pre15 ceding sentence shall apply only to the extent that such

16 reimbursement would be deductible under section 274(d)

17 (determined by applying the standard business mileage

18 rate established pursuant to section 274(d)) if the organi19 zation were not so described and such individual were an

20 employee of such organization.

21 ‘‘(b) NO DOUBLE BENEFIT.—Subsection (a) shall

22 not apply with respect to any expenses if the individual

23 claims a deduction or credit for such expenses under any

24 other provision of this title.

25 ‘‘(c) EXEMPTION FROM REPORTING REQUIRE26 MENTS.—Section 6041 shall not apply with respect to re-
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1 imbursements excluded from income under subsection

2 (a).’’

3 (b) CLERICAL AMENDMENT.—The table of sections

4 for part III of subchapter B of chapter 1 is amended by

5 inserting after the item relating to section 138 the fol6 lowing new items:

‘‘Sec. 138A. Reimbursement for use of passenger automobile for

charity.’’

7 (c) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years beginning after

9 December 31, 1999.

10 SEC. 806. CHARITABLE CONTRIBUTION DEDUCTION FOR

11 CERTAIN EXPENSES INCURRED IN SUPPORT

12 OF NATIVE ALASKAN SUBSISTENCE WHAL13 ING.

14 (a) IN GENERAL.—Section 170 (relating to chari15 table, etc., contributions and gifts) is amended by redesig16 nating subsection (m) as subsection (n) and by inserting

17 after subsection (l) the following new subsection:

18 ‘‘(m) EXPENSES PAID BY CERTAIN WHALING CAP19 TAINS IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE

20 WHALING.—

21 ‘‘(1) IN GENERAL.—In the case of an individual

22 who is recognized by the Alaska Eskimo Whaling

23 Commission as a whaling captain charged with the

24 responsibility of maintaining and carrying out sanc-
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1 tioned whaling activities and who engages in such

2 activities during the taxable year, the amount de3 scribed in paragraph (2) (to the extent such amount

4 does not exceed $7,500 for the taxable year) shall be

5 treated for purposes of this section as a charitable

6 contribution.

7 ‘‘(2) AMOUNT DESCRIBED.—

8 ‘‘(A) IN GENERAL.—The amount described

9 in this paragraph is the aggregate of the rea10 sonable and necessary whaling expenses paid by

11 the taxpayer during the taxable year in carrying

12 out sanctioned whaling activities.

13 ‘‘(B) WHALING EXPENSES.—For purposes

14 of subparagraph (A), the term ‘whaling ex15 penses’ includes expenses for—

16 ‘‘(i) the acquisition and maintenance

17 of whaling boats, weapons, and gear used

18 in sanctioned whaling activities,

19 ‘‘(ii) the supplying of food for the

20 crew and other provisions for carrying out

21 such activities, and

22 ‘‘(iii) storage and distribution of the

23 catch from such activities.

24 ‘‘(3) SANCTIONED WHALING ACTIVITIES.—For

25 purposes of this subsection, the term ‘sanctioned
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1 whaling activities’ means subsistence bowhead whale

2 hunting activities conducted pursuant to the man3 agement plan of the Alaska Eskimo Whaling Com4 mission.’’

5 (b) EFFECTIVE DATE.—The amendments made by

6 subsection (a) shall apply to taxable years beginning after

7 December 31, 1999.

8 SEC. 807. CHARITABLE CONTRIBUTIONS TO CERTAIN LOW

9 INCOME SCHOOLS MAY BE MADE IN NEXT

10 TAXABLE YEAR.

11 (a) IN GENERAL.—Section 170(f) (relating to dis12 allowance of deduction in certain cases and special rules)

13 is amended by adding at the end the following new para14 graph:

15 ‘‘(10) TIME WHEN CERTAIN CONTRIBUTIONS

16 DEEMED MADE.—

17 ‘‘(A) IN GENERAL.—At the election of the

18 taxpayer, a qualified low-income school con19 tribution shall be deemed to be made on the

20 last day of the preceding taxable year if the

21 contribution is made on account of such taxable

22 year and is made not later than the time pre23 scribed by law for filing the return for such tax24 able year (not including extensions thereof).

25 The election may be made at the time of the fil-
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1 ing of the return for such table year, and shall

2 be made and substantiated in such manner as

3 the Secretary shall by regulations prescribe.

4 ‘‘(B) QUALIFIED LOW-INCOME SCHOOL

5 CONTRIBUTION.—For purposes of subpara6 graph (A), the term ‘qualified low-income school

7 contribution’ means a charitable contribution to

8 an educational organization described in sub9 section (b)(1)(A)(ii)—

10 ‘‘(i) which is a public, private, or sec11 tarian school which provides elementary or

12 secondary education (through grade 12),

13 as determined under State law, and

14 ‘‘(ii) with respect to which at least 50

15 percent of the students attending such

16 school are eligible for free or reduced-cost

17 lunches under the school lunch program es18 tablished under the National School Lunch

19 Act.’’

20 (b) EFFECTIVE DATE.—The amendment made by

21 this section shall apply to taxable years beginning after

22 December 31, 1999.
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1 SEC. 808. DEDUCTION FOR PORTION OF CHARITABLE CON2 TRIBUTIONS TO BE ALLOWED TO INDIVID3 UALS WHO DO NOT ITEMIZE DEDUCTIONS.

4 (a) IN GENERAL.—Section 170 (relating to chari5 table, etc., contributions and gifts), as amended by section

6 806, is amended by redesignating subsection (n) as sub7 section (o) and by inserting after subsection (m) the fol8 lowing new subsection:

9 ‘‘(n) DEDUCTION FOR INDIVIDUALS NOT ITEMIZING

10 DEDUCTIONS.—In the case of an individual who does not

11 itemize his deductions for the taxable year, there shall be

12 taken into account as a direct charitable deduction under

13 section 63 an amount equal to the lesser of—

14 ‘‘(1) the amount allowable as a deduction under

15 subsection (a) for the taxable year, or

16 ‘‘(2) $50 ($100 in the case of a joint return).’’

17 (b) DIRECT CHARITABLE DEDUCTION.—

18 (1) IN GENERAL.—Subsection (b) of section 63

19 is amended by striking ‘‘and’’ at the end of para20 graph (1), by striking the period at the end of para21 graph (2) and inserting ‘‘, and’’, and by adding at

22 the end thereof the following new paragraph:

23 ‘‘(3) the direct charitable deduction.’’

24 (2) DEFINITION.—Section 63 is amended by re25 designating subsection (g) as subsection (h) and by
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•S 1429 PCS

1 inserting after subsection (f) the following new sub2 section:

3 ‘‘(g) DIRECT CHARITABLE DEDUCTION.—For pur4 poses of this section, the term ‘direct charitable deduction’

5 means that portion of the amount allowable under section

6 170(a) which is taken as a direct charitable deduction for

7 the taxable year under section 170(n).’’

8 (3) CONFORMING AMENDMENT.—Subsection (d)

9 of section 63 is amended by striking ‘‘and’’ at the

10 end of paragraph (1), by striking the period at the

11 end of paragraph (2) and inserting ‘‘, and’’, and by

12 adding at the end thereof the following new para13 graph:

14 ‘‘(3) the direct charitable deduction.’’

15 (c) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to taxable years beginning after

17 December 31, 1999 and ending before January 1, 2002.

18 SEC. 809. INCREASE IN LIMIT ON CHARITABLE CONTRIBU19 TIONS AS PERCENTAGE OF AGI.

20 (a) IN GENERAL.—

21 (1) INDIVIDUAL LIMIT.—Section 170(b)(1) (re22 lating to percentage limitations) is amended—

23 (A) by striking ‘‘50 percent’’ in subpara24 graph (A) and inserting ‘‘the applicable per25 centage’’, and
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1 (B) by striking ‘‘30 percent’’ each place it

2 appears in subparagraph (C) and inserting ‘‘the

3 applicable percentage’’.

4 (2) CORPORATE LIMIT.—Section 170(b)(2) is

5 amended by striking ‘‘10 percent’’ and inserting

6 ‘‘the applicable percentage’’.

7 (b) APPLICABLE PERCENTAGE.—Section 170(b) is

8 amended by adding at the end the following new para9 graph:

10 ‘‘(3) APPLICABLE PERCENTAGE.—For purposes

11 of this subsection, the applicable percentage shall be

12 determined under the following tables:

13 ‘‘(A) In the case of paragraph (1)(A):

‘‘For taxable year— The applicable percentage is—

2002 ............................................................................. 52

2003 ............................................................................. 54

2004 ............................................................................. 56

2005 ............................................................................. 58

2006 ............................................................................. 60

2007 and thereafter ..................................................... 70.

14 ‘‘(B) In the case of paragraph (1)(C):

‘‘For taxable year— The applicable percentage is—

2002 ............................................................................. 32

2003 ............................................................................. 34

2004 ............................................................................. 36

2005 ............................................................................. 38

2006 ............................................................................. 40

2007 and thereafter ..................................................... 50.

15 ‘‘(C) In the case of paragraph (2):

‘‘For taxable year— The applicable percentage is—

2002 ............................................................................. 12

2003 ............................................................................. 14

2004 ............................................................................. 16

2005 ............................................................................. 18

2006 and thereafter ..................................................... 20.’’
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1 (c) CONFORMING AMENDMENT.—Section

2 170(d)(1)(A) is amended by striking ‘‘50 percent’’ each

3 place it appears and inserting ‘‘the applicable percentage

4 in effect under subsection (b)(1)(A)’’.

5 (d) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to taxable years beginning after

7 December 31, 2001.

8 SEC. 810. LIMITED EXCEPTION TO EXCESS BUSINESS HOLD9 INGS RULE.

10 (a) IN GENERAL.—Section 4943(c)(2) (relating to

11 permitted holdings in a corporation) is amended by adding

12 at the end the following new subparagraphs:

13 ‘‘(D) RULE WHERE VOTING STOCK IS PUB14 LICLY TRADED.—

15 ‘‘(i) IN GENERAL.—If—

16 ‘‘(I) the private foundation and

17 all disqualified persons together do

18 not own more than the applicable per19 centage of the voting stock and not

20 more than the applicable percentage

21 in value of all outstanding shares of

22 all classes of stock of an incorporated

23 business enterprise,

24 ‘‘(II) the voting stock owned by

25 the private foundation and all dis-
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1 qualified persons together is stock for

2 which market quotations are readily

3 available on an established securities

4 market, and

5 ‘‘(III) the requirements of clause

6 (ii) are met,

7 then subparagraph (A) shall be applied by

8 substituting ‘the applicable percentage’ for

9 ‘20 percent’.

10 ‘‘(ii) REQUIREMENTS TO BE MET.—

11 The requirements of this clause are met

12 during any taxable year—

13 ‘‘(I) in which disqualified persons

14 with respect to the private foundation

15 do not receive compensation (as an

16 employee or otherwise) from the cor17 poration or engage in any act with

18 such corporation which would con19 stitute self-dealing within the meaning

20 of section 4941(d) if such corporation

21 were a private foundation and if each

22 such disqualified person were a dis23 qualified person with respect to such

24 corporation,
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1 ‘‘(II) in which disqualified per2 sons with respect to such private

3 foundation do not own in the aggre4 gate more than 2 percent of the vot5 ing stock and not more than 2 percent

6 in value of all outstanding shares of

7 all classes of stock in such corpora8 tion, and

9 ‘‘(III) for which there is sub10 mitted with the annual return of the

11 private foundation for such year (filed

12 within the time prescribed by law, in13 cluding extensions, for filing such re14 turn) a certification which is signed

15 by all the members of an audit com16 mittee of the Board of Directors of

17 such corporation consisting of a ma18 jority of persons who are not disquali19 fied persons with respect to such pri20 vate foundation and which certifies

21 that such members, after due inquiry,

22 are not aware that any disqualified

23 person has received compensation

24 from such corporation or has engaged

25 in any act with such corporation that
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1 would constitute self-dealing within

2 the meaning of section 4941(d) if

3 such corporation were a private foun4 dation and if each such disqualified

5 person were a disqualified person with

6 respect to such corporation.

7 For purposes of this clause, the fact that

8 a disqualified person has received com9 pensation from such corporation or has en10 gaged in any act with such corporation

11 which would constitute self-dealing within

12 the meaning of section 4941(d) shall be

13 disregarded if such receipt or act is cor14 rected not later than the due date (not in15 cluding extensions thereof) for the filing of

16 the private foundation’s annual return for

17 the year in which the receipt or act occurs

18 and on the terms that would be necessary

19 to correct such receipt or act and thereby

20 avoid imposition of tax under section

21 4941(b).

22 ‘‘(E) APPLICABLE PERCENTAGE.—For

23 purposes of this paragraph, the applicable per24 centage shall be determined under the following

25 table:
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‘‘For taxable year— The applicable percentage is—

2007 ............................................................................. 40

2008 and thereafter ..................................................... 49.’’

1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to foundations established by be3 quest of decedents dying after December 31, 2006.

4 TITLE IX—INTERNATIONAL TAX

5 RELIEF

6 SEC. 901. INTEREST ALLOCATION RULES.

7 (a) ELECTION TO ALLOCATE INTEREST ON A

8 WORLDWIDE BASIS.—Subsection (e) of section 864 (relat9 ing to rules for allocating interest, etc.) is amended by

10 redesignating paragraphs (6) and (7) as paragraphs (7)

11 and (8), respectively, and by inserting after paragraph (5)

12 the following new paragraph:

13 ‘‘(6) ELECTION TO ALLOCATE INTEREST ON A

14 WORLDWIDE BASIS.—

15 ‘‘(A) IN GENERAL.—Except as provided in

16 this paragraph, this subsection shall be applied

17 by treating a worldwide affiliated group for

18 which an election is in effect under this para19 graph as an affiliated group solely for purposes

20 of allocating and apportioning interest expense

21 of each domestic corporation which is a member

22 of such group.

23 ‘‘(B) WORLDWIDE AFFILIATED GROUP.—

24 For purposes of this paragraph, the term
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1 ‘worldwide affiliated group’ means the group of

2 corporations which consists of—

3 ‘‘(i) all corporations in an affiliated

4 group (as defined in paragraph (5)(A), ex5 cept that section 1504 shall also be applied

6 without regard to subsection (b)(2) there7 of), and

8 ‘‘(ii) all foreign corporations (other

9 than a FSC, as defined in section 922(a))

10 which would be a member of such affiliated

11 group if paragraph (3) of section 1504 (b)

12 did not apply.

13 ‘‘(C) TREATMENT OF WORLDWIDE AFFILI14 ATED GROUP.—For purposes of applying para15 graph (1), the taxable income of the domestic

16 members of a worldwide affiliated group from

17 sources outside the United States shall be de18 termined by allocating and apportioning the in19 terest expense of such domestic members to

20 such income in an amount equal to the excess

21 (if any) of—

22 ‘‘(i) the total interest expense of the

23 worldwide affiliated group multiplied by

24 the ratio which the foreign assets of the

25 worldwide affiliated group bears to all the
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1 assets of the worldwide affiliated group,

2 over

3 ‘‘(ii) the interest expense of all foreign

4 corporations which are members of the

5 worldwide affiliated group to the extent

6 such interest expense of such foreign cor7 porations would have been allocated and

8 apportioned to foreign source income if

9 this subsection were applied to a group

10 consisting of all the foreign corporations in

11 such worldwide affiliated group.

12 ‘‘(D) ELECTION.—An election under this

13 paragraph with respect to any worldwide affili14 ated group may be made only by the common

15 parent of the affiliated group referred to in sub16 paragraph (B)(i) and may be made only for the

17 first taxable year beginning after December 31,

18 2003, in which a worldwide affiliated group ex19 ists which includes such affiliated group and at

20 least 1 corporation described in subparagraph

21 (B)(ii). Such an election, once made, shall apply

22 to such common parent and all other corpora23 tions which are members of such worldwide af24 filiated group for such taxable year and all sub-
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1 sequent years unless revoked with the consent

2 of the Secretary.’’

3 (b) ELECTION TO EXPAND FINANCIAL INSTITUTION

4 GROUP OF WORLDWIDE GROUP.—Section 864 is amended

5 by redesignating subsection (f) as subsection (g) and by

6 inserting after subsection (e) the following new subsection:

7 ‘‘(f) ELECTION TO EXPAND FINANCIAL INSTITUTION

8 GROUP OF WORLDWIDE GROUP.—

9 ‘‘(1) IN GENERAL.—If a worldwide affiliated

10 group for which an election under subsection (e)(6)

11 is in effect elects the application of this subsection,

12 all financial corporations which—

13 ‘‘(A) are members of such worldwide affili14 ated group, but

15 ‘‘(B) are not corporations described in sub16 section (e)(5)(C),

17 shall be treated as described in subsection (e)(5)(C)

18 for purposes of applying subsection (e)(5)(B). Sub19 section (e) shall apply to any such group in the same

20 manner as subsection (e) applies to the pre-election

21 worldwide affiliated group of which such group is a

22 part.

23 ‘‘(2) FINANCIAL CORPORATION.—For purposes

24 of this subsection, the term ‘financial corporation’

25 means any corporation if at least 80 percent of its
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1 gross income is income described in section

2 904(d)(2)(C)(ii) and the regulations thereunder

3 which is derived from transactions with persons not

4 bearing a relationship described in section 267(b) or

5 707(b)(1) to the corporation.

6 ‘‘(3) ANTIABUSE RULES.—In the case of a cor7 poration which is a member of an electing financial

8 institution group, to the extent that such

9 corporation—

10 ‘‘(A) distributes dividends or makes other

11 distributions with respect to its stock after the

12 date of the enactment of this paragraph to any

13 member of the pre-election worldwide affiliated

14 group (other than to a member of the electing

15 financial institution group) in excess of the

16 greater of—

17 ‘‘(i) its average annual dividend (ex18 pressed as a percentage of current earn19 ings and profits) during the 5-taxable-year

20 period ending with the taxable year pre21 ceding the taxable year, or

22 ‘‘(ii) 25 percent of its average annual

23 earnings and profits for such 5 taxable

24 year period, or
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1 ‘‘(B) deals with any person in any manner

2 not clearly reflecting the income of the corpora3 tion (as determined under principles similar to

4 the principles of section 482),

5 an amount of indebtedness of the electing financial

6 institution group equal to the excess distribution or

7 the understatement or overstatement of income, as

8 the case may be, shall be recharacterized (for the

9 taxable year and subsequent taxable years) for pur10 poses of this subsection as indebtedness of the

11 worldwide affiliated group (excluding the electing fi12 nancial institution group). If a corporation has not

13 been in existence for 5 taxable years, this subpara14 graph shall be applied with respect to the period it

15 was in existence.

16 ‘‘(4) ELECTION.—An election under this sub17 section with respect to any financial institution

18 group may be made only by the common parent of

19 the pre-election worldwide affiliated group and may

20 be made only for the first taxable year beginning

21 after December 31, 2003, in which such affiliated

22 group includes 1 or more financial corporations de23 scribed in paragraph (1)(B). Such an election, once

24 made, shall apply to all financial corporations which

25 are members of the electing financial institution
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1 group for such taxable year and all subsequent years

2 unless revoked with the consent of the Secretary.

3 ‘‘(5) DEFINITIONS RELATING TO GROUPS.—For

4 purposes of this subsection—

5 ‘‘(A) PRE-ELECTION WORLDWIDE AFFILI6 ATED GROUP.—The term ‘pre-election world7 wide affiliated group’ means, with respect to a

8 corporation, the worldwide affiliated group of

9 which such corporation would (but for an elec10 tion under this subsection) be a member for

11 purposes of applying subsection (e).

12 ‘‘(B) ELECTING FINANCIAL INSTITUTION

13 GROUP.—The term ‘electing financial institu14 tion group’ means the group of corporations to

15 which subsection (e) applies separately by rea16 son of the application of subsection (e)(5)(B)

17 and which includes financial corporations by

18 reason of an election under paragraph (1).

19 ‘‘(6) REGULATIONS.—The Secretary shall pre20 scribe such regulations as may be appropriate to

21 carry out this subsection and subsection (e), includ22 ing regulations—

23 ‘‘(A) providing for the direct allocation of

24 interest expense in other circumstances where
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1 such allocation would be appropriate to carry

2 out the purposes of this subsection,

3 ‘‘(B) preventing assets or interest expense

4 from being taken into account more than once,

5 and

6 ‘‘(C) dealing with changes in members of

7 any group (through acquisitions or otherwise)

8 treated under this subsection as an affiliated

9 group for purposes of subsection (e).’’

10 (c) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to taxable years beginning after

12 December 31, 2003.

13 SEC. 902. LOOK-THRU RULES TO APPLY TO DIVIDENDS

14 FROM NONCONTROLLED SECTION 902 COR15 PORATIONS.

16 (a) IN GENERAL.—Section 904(d)(4) (relating to ap17 plication of look-thru rules to dividends from noncon18 trolled section 902 corporations) is amended to read as

19 follows:

20 ‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM

21 NONCONTROLLED SECTION 902 CORPORATIONS.—

22 ‘‘(A) IN GENERAL.—For purposes of this

23 subsection, any dividend from a noncontrolled

24 section 902 corporation with respect to the tax-
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1 payer shall be treated as income in a separate

2 category in proportion to the ratio of—

3 ‘‘(i) the portion of earnings and prof4 its attributable to income in such category,

5 to

6 ‘‘(ii) the total amount of earnings and

7 profits.

8 ‘‘(B) SPECIAL RULES.—For purposes of

9 this paragraph—

10 ‘‘(i) IN GENERAL.—Rules similar to

11 the rules of paragraph (3)(F) shall apply,

12 except that the term ‘separate category’

13 shall include the category of income de14 scribed in paragraph (1)(I).

15 ‘‘(ii) EARNINGS AND PROFITS.—

16 ‘‘(I) IN GENERAL.—The rules of

17 section 316 shall apply.

18 ‘‘(II) REGULATIONS.—The Sec19 retary may prescribe regulations re20 garding the treatment of distributions

21 out of earnings and profits for periods

22 before the taxpayer’s acquisition of

23 the stock to which the distributions

24 relate.
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1 ‘‘(iii) DIVIDENDS NOT ALLOCABLE TO

2 SEPARATE CATEGORY.—The portion of any

3 dividend from a noncontrolled section 902

4 corporation which is not treated as income

5 in a separate category under subparagraph

6 (A) shall be treated as a dividend to which

7 subparagraph (A) does not apply.

8 ‘‘(iv) LOOK-THRU WITH RESPECT TO

9 CARRYFORWARDS OF CREDIT.—Rules simi10 lar to subparagraph (A) also shall apply to

11 any carryforward under subsection (c)

12 from a taxable year beginning before Janu13 ary 1, 2003, of tax allocable to a dividend

14 from a noncontrolled section 902 corpora15 tion with respect to the taxpayer.’’

16 (b) CONFORMING AMENDMENTS.—

17 (1) Subparagraph (E) of section 904(d)(1), as

18 in effect both before and after the amendments

19 made by section 1105 of the Taxpayer Relief Act of

20 1997, is hereby repealed.

21 (2) Section 904(d)(2)(C)(iii), as so in effect, is

22 amended by striking subclause (II) and by redesig23 nating subclause (III) as subclause (II).
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1 (3) The last sentence of section 904(d)(2)(D),

2 as so in effect, is amended to read as follows: ‘‘Such

3 term does not include any financial services income.’’

4 (4) Section 904(d)(2)(E) is amended by strik5 ing clauses (ii) and (iv) and by redesignating clause

6 (iii) as clause (ii).

7 (5) Section 904(d)(3)(F) is amended by strik8 ing ‘‘(D), or (E)’’ and inserting ‘‘or (D)’’.

9 (6) Section 864(d)(5)(A)(i) is amended by

10 striking ‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to taxable years beginning after

13 December 31, 2002.

14 SEC. 903. CLARIFICATION OF TREATMENT OF PIPELINE

15 TRANSPORTATION INCOME.

16 (a) IN GENERAL.—Section 954(g)(1) (defining for17 eign base company oil related income) is amended by strik18 ing ‘‘or’’ at the end of subparagraph (A), by striking the

19 period at the end of subparagraph (B) and inserting ‘‘,

20 or’’, and by inserting after subparagraph (B) the following

21 new subparagraph:

22 ‘‘(C) the pipeline transportation of oil or

23 gas within such foreign country.’’

24 (b) EFFECTIVE DATE.—The amendment made by

25 this section shall apply to taxable years of controlled for-
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1 eign corporations beginning after December 31, 2002, and

2 taxable years of United States shareholders with or within

3 which such taxable years of controlled foreign corporations

4 end.

5 SEC. 904. SUBPART F TREATMENT OF INCOME FROM

6 TRANSMISSION OF HIGH VOLTAGE ELEC7 TRICITY.

8 (a) IN GENERAL.—Paragraph (2) of section 954(e)

9 (relating to foreign base company services income) is

10 amended by striking ‘‘or’’ at the end of subparagraph (A),

11 by striking the period at the end of subparagraph (B) and

12 inserting ‘‘, or’’, and by inserting after subparagraph (B)

13 the following new subparagraph:

14 ‘‘(C) the transmission of high voltage elec15 tricity.’’

16 (b) EFFECTIVE DATE.—The amendment made by

17 this section shall apply to taxable years of controlled for18 eign corporations beginning after December 31, 2002, and

19 taxable years of United States shareholders with or within

20 which such taxable years of controlled foreign corporations

21 end.

22 SEC. 905. ADVANCE PRICING AGREEMENTS TREATED AS

23 CONFIDENTIAL TAXPAYER INFORMATION.

24 (a) IN GENERAL.—
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1 (1) TREATMENT AS RETURN INFORMATION.—

2 Paragraph (2) of section 6103(b) (defining return

3 information) is amended by striking ‘‘and’’ at the

4 end of subparagraph (A), by inserting ‘‘and’’ at the

5 end of subparagraph (B), and by inserting after sub6 paragraph (B) the following new subparagraph:

7 ‘‘(C) any advance pricing agreement en8 tered into by a taxpayer and the Secretary and

9 any background information related to such

10 agreement or any application for an advance

11 pricing agreement,’’.

12 (2) EXCEPTION FROM PUBLIC INSPECTION AS

13 WRITTEN DETERMINATION.—Paragraph (1) of sec14 tion 6110(b) (defining written determination) is

15 amended by adding at the end the following new

16 sentence: ‘‘Such term shall not include any advance

17 pricing agreement entered into by a taxpayer and

18 the Secretary and any background information re19 lated to such agreement or any application for an

20 advance pricing agreement.’’

21 (3) EFFECTIVE DATE.—The amendments made

22 by this subsection shall take effect on the date of the

23 enactment of this Act.

24 (b) ANNUAL REPORT REGARDING ADVANCE PRICING

25 AGREEMENTS.—
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1 (1) IN GENERAL.—Not later than 90 days after

2 the end of each calendar year, the Secretary of the

3 Treasury shall prepare and publish a report regard4 ing advance pricing agreements.

5 (2) CONTENTS OF REPORT.—The report shall

6 include the following for the calendar year to which

7 such report relates:

8 (A) Information about the structure, com9 position, and operation of the advance pricing

10 agreement program office.

11 (B) A copy of each model advance pricing

12 agreement.

13 (C) The number of—

14 (i) applications filed during such cal15 endar year for advanced pricing agree16 ments;

17 (ii) advance pricing agreements exe18 cuted cumulatively to date and during such

19 calendar year;

20 (iii) renewals of advanced pricing

21 agreements issued;

22 (iv) pending requests for advance pric23 ing agreements;

24 (v) pending renewals of advance pric25 ing agreements;
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1 (vi) for each of the items in clauses

2 (ii) through (v), the number that are uni3 lateral, bilateral, and multilateral, respec4 tively;

5 (vii) advance pricing agreements re6 voked or canceled, and the number of with7 drawals from the advance pricing agree8 ment program; and

9 (viii) advanced pricing agreements fi10 nalized or renewed by industry.

11 (D) General descriptions of—

12 (i) the nature of the relationships be13 tween the related organizations, trades, or

14 businesses covered by advance pricing

15 agreements;

16 (ii) the covered transactions and the

17 business functions performed and risks as18 sumed by such organizations, trades, or

19 businesses;

20 (iii) the related organizations, trades,

21 or businesses whose prices or results are

22 tested to determine compliance with trans23 fer pricing methodologies prescribed in ad24 vanced pricing agreements;
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1 (iv) methodologies used to evaluate

2 tested parties and transactions and the cir3 cumstances leading to the use of those

4 methodologies;

5 (v) critical assumptions made and

6 sources of comparables used;

7 (vi) comparable selection criteria and

8 the rationale used in determining such cri9 teria;

10 (vii) the nature of adjustments to

11 comparables or tested parties;

12 (viii) the nature of any ranges agreed

13 to, including information regarding when

14 no range was used and why, when inter15 quartile ranges were used, and when there

16 was a statistical narrowing of the

17 comparables;

18 (ix) adjustment mechanisms provided

19 to rectify results that fall outside of the

20 agreed upon advance pricing agreement

21 range;

22 (x) the various term lengths for ad23 vance pricing agreements, including roll24 back years, and the number of advance
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1 pricing agreements with each such term

2 length;

3 (xi) the nature of documentation re4 quired; and

5 (xii) approaches for sharing of cur6 rency or other risks.

7 (E) Statistics regarding the amount of

8 time taken to complete new and renewal ad9 vance pricing agreements.

10 (3) CONFIDENTIALITY.—The reports required

11 by this subsection shall be treated as authorized by

12 the Internal Revenue Code of 1986 for purposes of

13 section 6103 of such Code, but the reports shall not

14 include information—

15 (A) which would not be permitted to be

16 disclosed under section 6110(c) of such Code if

17 such report were a written determination as de18 fined in section 6110 of such Code, or

19 (B) which can be associated with, or other20 wise identify, directly or indirectly, a particular

21 taxpayer.

22 (4) FIRST REPORT.—The report for calendar

23 year 1999 shall include prior calendar years after

24 1990.
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1 (c) USER FEE.—Section 7527, as added by this Act,

2 is amended by redesignating subsection (c) as subsection

3 (d) and by inserting after subsection (b) the following new

4 subsection:

5 ‘‘(c) ADVANCE PRICING AGREEMENTS.—

6 ‘‘(1) IN GENERAL.—In addition to any fee oth7 erwise imposed under this section, the fee imposed

8 for requests for advance pricing agreements shall be

9 increased by $500.

10 ‘‘(2) REDUCED FEE FOR SMALL BUSINESSES.—

11 The Secretary shall provide an appropriate reduction

12 in the amount imposed by reason of paragraph (1)

13 for requests for advance pricing agreements for

14 small businesses.’’

15 (d) REGULATIONS.—The Secretary of the Treasury

16 or the Secretary’s delegate shall prescribe such regulations

17 as may be necessary or appropriate to carry out the pur18 poses of section 6103(b)(2)(C), and the last sentence of

19 section 6110(b)(1), of the Internal Revenue Code of 1986,

20 as added by this section.

21 SEC. 906. AIRLINE MILEAGE AWARDS TO CERTAIN FOREIGN

22 PERSONS.

23 (a) IN GENERAL.—The last sentence of section

24 4261(e)(3)(C) (relating to regulations) is amended by in25 serting ‘‘and mileage awards which are issued to individ-
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1 uals whose mailing addresses on record with the person

2 providing the right to air transportation are outside the

3 United States’’ before the period at the end thereof.

4 (b) EFFECTIVE DATE.—The amendment made by

5 this section shall apply to amounts paid after December

6 31, 1999.

7 SEC. 907. REPEAL OF FOREIGN TAX CREDIT LIMITATION

8 UNDER ALTERNATIVE MINIMUM TAX.

9 (a) IN GENERAL.—Section 59(a) (relating to alter10 native minimum tax foreign tax credit) is amended by

11 striking paragraph (2) and by redesignating paragraphs

12 (3) and (4) as paragraphs (2) and (3), respectively.

13 (b) CONFORMING AMENDMENT.—Section

14 53(d)(1)(B)(i)(II) is amended by striking ‘‘and if section

15 59(a)(2) did not apply’’.

16 (c) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to taxable years beginning after

18 December 31, 2004.

19 SEC. 908. TREATMENT OF MILITARY PROPERTY OF FOR20 EIGN SALES CORPORATIONS.

21 (a) IN GENERAL.—Section 923(a) (defining exempt

22 foreign trade income) is amended by striking paragraph

23 (5) and by redesignating paragraph (6) as paragraph (5).
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 2004.

4 TITLE X—HOUSING AND REAL

5 ESTATE TAX RELIEF PROVI6 SIONS

7 Subtitle A—Low-Income Housing

8 Credit

9 SEC. 1001. MODIFICATION OF STATE CEILING ON LOW-IN10 COME HOUSING CREDIT.

11 (a) IN GENERAL.—Clauses (i) and (ii) of section

12 42(h)(3)(C) (relating to State housing credit ceiling) are

13 amended to read as follows:

14 ‘‘(i) the unused State housing credit

15 ceiling (if any) of such State for the pre16 ceding calendar year,

17 ‘‘(ii) the greater of—

18 ‘‘(I) the applicable amount under

19 subparagraph (H) multiplied by the

20 State population, or

21 ‘‘(II) $2,000,000,’’.

22 (b) APPLICABLE AMOUNT.—Paragraph (3) of section

23 42(h) (relating to housing credit dollar amount for agen24 cies) is amended by adding at the end the following new

25 subparagraph:
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1 ‘‘(H) APPLICABLE AMOUNT OF STATE

2 CEILING.—For purposes of subparagraph

3 (C)(ii), the applicable amount shall be deter4 mined under the following table:

‘‘For calendar year— The applicable amount is—

2001 ............................................................................. $1.35

2002 ............................................................................. 1.45

2003 ............................................................................. 1.55

2004 ............................................................................. 1.65

2005 and thereafter ..................................................... 1.75.’’

5 (c) CONFORMING AMENDMENTS.—

6 (1) Section 42(h)(3)(C), as amended by sub7 section (a), is amended—

8 (A) by striking ‘‘clause (ii)’’ in the matter

9 following clause (iv) and inserting ‘‘clause (i)’’,

10 and

11 (B) by striking ‘‘clauses (i)’’ in the matter

12 following clause (iv) and inserting ‘‘clauses

13 (ii)’’.

14 (2) Section 42(h)(3)(D)(ii) is amended—

15 (A) by striking ‘‘subparagraph (C)(ii)’’ and

16 inserting ‘‘subparagraph (C)(i)’’, and

17 (B) by striking ‘‘clauses (i)’’ in subclause

18 (II) and inserting ‘‘clauses (ii)’’.

19 (d) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to calendar years after 2000.
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1 Subtitle B—Historic Homes

2 SEC. 1011. TAX CREDIT FOR RENOVATING HISTORIC

3 HOMES.

4 (a) IN GENERAL.—Subpart A of part IV of sub5 chapter A of chapter 1 (relating to nonrefundable personal

6 credits) is amended by inserting after section 25A the fol7 lowing new section:

8 ‘‘SEC. 25B. HISTORIC HOMEOWNERSHIP REHABILITATION

9 CREDIT.

10 ‘‘(a) GENERAL RULE.—In the case of an individual,

11 there shall be allowed as a credit against the tax imposed

12 by this chapter for the taxable year an amount equal to

13 20 percent of the qualified rehabilitation expenditures

14 made by the taxpayer with respect to a qualified historic

15 home.

16 ‘‘(b) DOLLAR LIMITATION.—The credit allowed by

17 subsection (a) with respect to any residence of a taxpayer

18 shall not exceed $20,000 ($10,000 in the case of a married

19 individual filing a separate return).

20 ‘‘(c) QUALIFIED REHABILITATION EXPENDITURE.—

21 For purposes of this section—

22 ‘‘(1) IN GENERAL.—The term ‘qualified reha23 bilitation expenditure’ means any amount properly

24 chargeable to capital account—
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1 ‘‘(A) in connection with the certified reha2 bilitation of a qualified historic home, and

3 ‘‘(B) for property for which depreciation

4 would be allowable under section 168 if the

5 qualified historic home were used in a trade or

6 business.

7 ‘‘(2) CERTAIN EXPENDITURES NOT IN8 CLUDED.—

9 ‘‘(A) EXTERIOR.—Such term shall not in10 clude any expenditure in connection with the re11 habilitation of a building unless at least 5 per12 cent of the total expenditures made in the reha13 bilitation process are allocable to the rehabilita14 tion of the exterior of such building.

15 ‘‘(B) OTHER RULES TO APPLY.—Rules

16 similar to the rules of clauses (ii) and (iii) of

17 section 47(c)(2)(B) shall apply.

18 ‘‘(3) MIXED USE OR MULTIFAMILY BUILDING.—

19 If only a portion of a building is used as the prin20 cipal residence of the taxpayer, only qualified reha21 bilitation expenditures which are properly allocable

22 to such portion shall be taken into account under

23 this section.

24 ‘‘(d) CERTIFIED REHABILITATION.—For purposes of

25 this section:
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1 ‘‘(1) IN GENERAL.—Except as otherwise pro2 vided in this subsection, the term ‘certified rehabili3 tation’ has the meaning given such term by section

4 47(c)(2)(C).

5 ‘‘(2) FACTORS TO BE CONSIDERED IN THE

6 CASE OF TARGETED AREA RESIDENCES, ETC.—

7 ‘‘(A) IN GENERAL.—For purposes of ap8 plying section 47(c)(2)(C) under this section

9 with respect to the rehabilitation of a building

10 to which this paragraph applies, consideration

11 shall be given to—

12 ‘‘(i) the feasibility of preserving exist13 ing architectural and design elements of

14 the interior of such building,

15 ‘‘(ii) the risk of further deterioration

16 or demolition of such building in the event

17 that certification is denied because of the

18 failure to preserve such interior elements,

19 and

20 ‘‘(iii) the effects of such deterioration

21 or demolition on neighboring historic prop22 erties.

23 ‘‘(B) BUILDINGS TO WHICH THIS PARA24 GRAPH APPLIES.—This paragraph shall apply

25 with respect to any building—
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1 ‘‘(i) any part of which is a targeted

2 area residence within the meaning of sec3 tion 143(j)(1), or

4 ‘‘(ii) which is located within an enter5 prise community or empowerment zone as

6 designated under section 1391,

7 but shall not apply with respect to any building

8 which is listed in the National Register.

9 ‘‘(3) APPROVED STATE PROGRAM.—The term

10 ‘certified rehabilitation’ includes a certification made

11 by—

12 ‘‘(A) a State Historic Preservation Officer

13 who administers a State Historic Preservation

14 Program approved by the Secretary of the Inte15 rior pursuant to section 101(b)(1) of the Na16 tional Historic Preservation Act, as in effect on

17 July 21, 1999, or

18 ‘‘(B) a local government, certified pursuant

19 to section 101(c)(1) of the National Historic

20 Preservation Act, as in effect on July 21, 1999,

21 and authorized by a State Historic Preservation

22 Officer, or the Secretary of the Interior where

23 there is no approved State program),

24 subject to such terms and conditions as may be

25 specified by the Secretary of the Interior for the re-
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•S 1429 PCS

1 habilitation of buildings within the jurisdiction of

2 such officer (or local government) for purposes of

3 this section.

4 ‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur5 poses of this section—

6 ‘‘(1) QUALIFIED HISTORIC HOME.—The term

7 ‘qualified historic home’ means a certified historic

8 structure—

9 ‘‘(A) which has been substantially rehabili10 tated, and

11 ‘‘(B) which (or any portion of which)—

12 ‘‘(i) is owned by the taxpayer, and

13 ‘‘(ii) is used (or will, within a reason14 able period, be used) by such taxpayer as

15 his principal residence.

16 ‘‘(2) SUBSTANTIALLY REHABILITATED.—The

17 term ‘substantially rehabilitated’ has the meaning

18 given such term by section 47(c)(1)(C); except that,

19 in the case of any building described in subsection

20 (d)(2), clause (i)(I) thereof shall not apply.

21 ‘‘(3) PRINCIPAL RESIDENCE.—The term ‘prin22 cipal residence’ has the same meaning as when used

23 in section 121.

24 ‘‘(4) CERTIFIED HISTORIC STRUCTURE.—
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1 ‘‘(A) IN GENERAL.—The term ‘certified

2 historic structure’ means any building (and its

3 structural components) which—

4 ‘‘(i) is listed in the National Register,

5 or

6 ‘‘(ii) is located in a registered historic

7 district (as defined in section 47(c)(3)(B))

8 within which only qualified census tracts

9 (or portions thereof) are located, and is

10 certified by the Secretary of the Interior to

11 the Secretary as being of historic signifi12 cance to the district.

13 ‘‘(B) CERTAIN STRUCTURES INCLUDED.—

14 Such term includes any building (and its struc15 tural components) which is designated as being

16 of historic significance under a statute of a

17 State or local government, if such statute is

18 certified by the Secretary of the Interior to the

19 Secretary as containing criteria which will sub20 stantially achieve the purpose of preserving and

21 rehabilitating buildings of historic significance.

22 ‘‘(C) QUALIFIED CENSUS TRACTS.—For

23 purposes of subparagraph (A)(ii)—

24 ‘‘(i) IN GENERAL.—The term ‘quali25 fied census tract’ means a census tract in
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1 which the median family income is less

2 than twice the statewide median family in3 come.

4 ‘‘(ii) DATA USED.—The determination

5 under clause (i) shall be made on the basis

6 of the most recent decennial census for

7 which data are available.

8 ‘‘(5) REHABILITATION NOT COMPLETE BEFORE

9 CERTIFICATION.—A rehabilitation shall not be treat10 ed as complete before the date of the certification re11 ferred to in subsection (d).

12 ‘‘(6) LESSEES.—A taxpayer who leases his

13 principal residence shall, for purposes of this section,

14 be treated as the owner thereof if the remaining

15 term of the lease (as of the date determined under

16 regulations prescribed by the Secretary) is not less

17 than such minimum period as the regulations re18 quire.

19 ‘‘(7) TENANT-STOCKHOLDER IN COOPERATIVE

20 HOUSING CORPORATION.—If the taxpayer holds

21 stock as a tenant-stockholder (as defined in section

22 216) in a cooperative housing corporation (as de23 fined in such section), such stockholder shall be

24 treated as owning the house or apartment which the

25 taxpayer is entitled to occupy as such stockholder.
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•S 1429 PCS

1 ‘‘(8) ALLOCATION OF EXPENDITURES RELAT2 ING TO EXTERIOR OF BUILDING CONTAINING COOP3 ERATIVE OR CONDOMINIUM UNITS.—The percentage

4 of the total expenditures made in the rehabilitation

5 of a building containing cooperative or condominium

6 residential units allocated to the rehabilitation of the

7 exterior of the building shall be attributed propor8 tionately to each cooperative or condominium resi9 dential unit in such building for which a credit

10 under this section is claimed.

11 ‘‘(f) WHEN EXPENDITURES TAKEN INTO AC12 COUNT.—In the case of a building other than a building

13 to which subsection (g) applies, qualified rehabilitation ex14 penditures shall be treated for purposes of this section as

15 made on the date the rehabilitation is completed.

16 ‘‘(g) ALLOWANCE OF CREDIT FOR PURCHASE OF RE17 HABILITATED HISTORIC HOME.—

18 ‘‘(1) IN GENERAL.—In the case of a qualified

19 purchased historic home, the taxpayer shall be treat20 ed as having made (on the date of purchase) the

21 qualified rehabilitation expenditures made by the

22 seller of such home. For purposes of the preceding

23 sentence, expenditures made by the seller shall be

24 deemed to be qualified rehabilitation expenditures if
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•S 1429 PCS

1 such expenditures, if made by the purchaser, would

2 be qualified rehabilitation expenditures.

3 ‘‘(2) QUALIFIED PURCHASED HISTORIC

4 HOME.—For purposes of this subsection, the term

5 ‘qualified purchased historic home’ means any sub6 stantially rehabilitated certified historic structure

7 purchased by the taxpayer if—

8 ‘‘(A) the taxpayer is the first purchaser of

9 such structure after the date rehabilitation is

10 completed, and the purchase occurs within 5

11 years after such date,

12 ‘‘(B) the structure (or a portion thereof)

13 will, within a reasonable period, be the principal

14 residence of the taxpayer,

15 ‘‘(C) no credit was allowed to the seller

16 under this section or section 47 with respect to

17 such rehabilitation, and

18 ‘‘(D) the taxpayer is furnished with such

19 information as the Secretary determines is nec20 essary to determine the credit under this sub21 section.

22 ‘‘(h) HISTORIC REHABILITATION MORTGAGE CREDIT

23 CERTIFICATE.—

24 ‘‘(1) IN GENERAL.—The taxpayer may elect, in

25 lieu of the credit otherwise allowable under this sec-
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•S 1429 PCS

1 tion, to receive a historic rehabilitation mortgage

2 credit certificate. An election under this paragraph

3 shall be made—

4 ‘‘(A) in the case of a building to which

5 subsection (g) applies, at the time of purchase,

6 or

7 ‘‘(B) in any other case, at the time reha8 bilitation is completed.

9 ‘‘(2) HISTORIC REHABILITATION MORTGAGE

10 CREDIT CERTIFICATE.—For purposes of this sub11 section, the term ‘historic rehabilitation mortgage

12 credit certificate’ means a certificate—

13 ‘‘(A) issued to the taxpayer, in accordance

14 with procedures prescribed by the Secretary,

15 with respect to a certified rehabilitation,

16 ‘‘(B) the face amount of which shall be

17 equal to the credit which would (but for this

18 subsection) be allowable under subsection (a) to

19 the taxpayer with respect to such rehabilitation,

20 ‘‘(C) which may only be transferred by the

21 taxpayer to a lending institution (including a

22 non-depository institution) in connection with a

23 loan—
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1 ‘‘(i) that is secured by the building

2 with respect to which the credit relates,

3 and

4 ‘‘(ii) the proceeds of which may not be

5 used for any purpose other than the acqui6 sition or rehabilitation of such building,

7 and

8 ‘‘(D) in exchange for which such lending

9 institution provides the taxpayer—

10 ‘‘(i) a reduction in the rate of interest

11 on the loan which results in interest pay12 ment reductions which are substantially

13 equivalent on a present value basis to the

14 face amount of such certificate, or

15 ‘‘(ii) if the taxpayer so elects with re16 spect to a specified amount of the face

17 amount of such a certificate relating to a

18 building—

19 ‘‘(I) which is a targeted area res20 idence within the meaning of section

21 143(j)(1), or

22 ‘‘(II) which is located in an en23 terprise community or empowerment

24 zone as designated under section

25 1391,
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•S 1429 PCS

1 a payment which is substantially equivalent

2 to such specified amount to be used to re3 duce the taxpayer’s cost of purchasing the

4 building (and only the remainder of such

5 face amount shall be taken into account

6 under clause (i)).

7 ‘‘(3) METHOD OF DISCOUNTING.—The present

8 value under paragraph (2)(D)(i) shall be

9 determined—

10 ‘‘(A) for a period equal to the term of the

11 loan referred to in subparagraph (D)(i),

12 ‘‘(B) by using the convention that any pay13 ment on such loan in any taxable year within

14 such period is deemed to have been made on

15 the last day of such taxable year,

16 ‘‘(C) by using a discount rate equal to 65

17 percent of the average of the annual Federal

18 mid-term rate and the annual Federal long19 term rate applicable under section 1274(d)(1)

20 to the month in which the taxpayer makes an

21 election under paragraph (1) and compounded

22 annually, and

23 ‘‘(D) by assuming that the credit allowable

24 under this section for any year is received on

25 the last day of such year.
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1 ‘‘(4) USE OF CERTIFICATE BY LENDER.—The

2 amount of the credit specified in the certificate shall

3 be allowed to the lender only to offset the regular

4 tax (as defined in section 55(c)) of such lender. The

5 lender may carry forward all unused amounts under

6 this subsection until exhausted.

7 ‘‘(5) HISTORIC REHABILITATION MORTGAGE

8 CREDIT CERTIFICATE NOT TREATED AS TAXABLE IN9 COME.—Notwithstanding any other provision of law,

10 no benefit accruing to the taxpayer through the use

11 of an historic rehabilitation mortgage credit certifi12 cate shall be treated as taxable income for purposes

13 of this title.

14 ‘‘(i) RECAPTURE.—

15 ‘‘(1) IN GENERAL.—If, before the end of the 5-

16 year period beginning on the date on which the reha17 bilitation of the building is completed (or, if sub18 section (g) applies, the date of purchase of such

19 building by the taxpayer, or, if subsection (h) ap20 plies, the date of the loan)—

21 ‘‘(A) the taxpayer disposes of such tax22 payer’s interest in such building, or

23 ‘‘(B) such building ceases to be used as the

24 principal residence of the taxpayer,
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1 the taxpayer’s tax imposed by this chapter for the

2 taxable year in which such disposition or cessation

3 occurs shall be increased by the recapture percent4 age of the credit allowed under this section for all

5 prior taxable years with respect to such rehabilita6 tion.

7 ‘‘(2) RECAPTURE PERCENTAGE.—For purposes

8 of paragraph (1), the recapture percentage shall be

9 determined in accordance with the following table:

‘‘If the disposition or cessation occurs within—The recapture percentage is—

(i) One full year after the taxpayer becomes entitled to the

credit.

100

(ii) One full year after the close of the period described in

clause (i).

80

(iii) One full year after the close of the period described in

clause (ii).

60

(iv) One full year after the close of the period described in

clause (iii).

40

(v) One full year after the close of the period described in

clause (iv).

20.’’

10 ‘‘(j) BASIS ADJUSTMENTS.—For purposes of this

11 subtitle, if a credit is allowed under this section for any

12 expenditure with respect to any property (including any

13 purchase under subsection (g) and any transfer under sub14 section (h)), the increase in the basis of such property

15 which would (but for this subsection) result from such ex16 penditure shall be reduced by the amount of the credit

17 so allowed.

18 ‘‘(k) DENIAL OF DOUBLE BENEFIT.—No credit shall

19 be allowed under this section for any amount for which

20 credit is allowed under section 47.
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•S 1429 PCS

1 ‘‘(l) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be appropriate to carry out the

3 purposes of this section, including regulations where less

4 than all of a building is used as a principal residence and

5 where more than 1 taxpayer use the same dwelling unit

6 as their principal residence.’’

7 (b) CONFORMING AMENDMENT.—Subsection (a) of

8 section 1016 is amended by striking ‘‘and’’ at the end of

9 paragraph (26), by striking the period at the end of para10 graph (27) and inserting ‘‘, and’’, and by adding at the

11 end the following new item:

12 ‘‘(28) to the extent provided in section 25B(j).’’

13 (c) CLERICAL AMENDMENT.—The table of sections

14 for subpart A of part IV of subchapter A of chapter 1

15 is amended by inserting after the item relating to section

16 25A the following new item:

‘‘Sec. 25B. Historic homeownership rehabilitation credit.’’

17 (d) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to expenses paid or incurred in

19 taxable years beginning after December 31, 1999.
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1 Subtitle C—Provisions Relating to

2 Real Estate Investment Trusts

3 PART I—TREATMENT OF INCOME AND SERVICES

4 PROVIDED BY TAXABLE REIT SUBSIDIARIES

5 SEC. 1021. MODIFICATIONS TO ASSET DIVERSIFICATION

6 TEST.

7 (a) IN GENERAL.—Subparagraph (B) of section

8 856(c)(4) is amended to read as follows:

9 ‘‘(B)(i) not more than 25 percent of the

10 value of its total assets is represented by securi11 ties (other than those includible under subpara12 graph (A)), and

13 ‘‘(ii) except with respect to a taxable REIT

14 subsidiary and securities includible under sub15 paragraph (A)—

16 ‘‘(I) not more than 5 percent of the

17 value of its total assets is represented by

18 securities of any 1 issuer,

19 ‘‘(II) the trust does not hold securities

20 possessing more than 10 percent of the

21 total voting power of the outstanding secu22 rities of any 1 issuer, and

23 ‘‘(III) the trust does not hold securi24 ties having a value of more than 10 per-
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1 cent of the total value of the outstanding

2 securities of any 1 issuer.’’

3 (b) EXCEPTION FOR STRAIGHT DEBT SECURITIES.—

4 Subsection (c) of section 856 is amended by adding at the

5 end the following new paragraph:

6 ‘‘(7) STRAIGHT DEBT SAFE HARBOR IN APPLY7 ING PARAGRAPH (4).—Securities of an issuer which

8 are straight debt (as defined in section 1361(c)(5)

9 without regard to subparagraph (B)(iii) thereof)

10 shall not be taken into account in applying para11 graph (4)(B)(ii)(III) if—

12 ‘‘(A) the issuer is an individual, or

13 ‘‘(B) the only securities of such issuer

14 which are held by the trust or a taxable REIT

15 subsidiary of the trust are straight debt (as so

16 defined), or

17 ‘‘(C) the issuer is a partnership and the

18 trust holds at least a 20 percent profits interest

19 in the partnership.’’

20 SEC. 1022. TREATMENT OF INCOME AND SERVICES PRO21 VIDED BY TAXABLE REIT SUBSIDIARIES.

22 (a) INCOME FROM TAXABLE REIT SUBSIDIARIES

23 NOT TREATED AS IMPERMISSIBLE TENANT SERVICE IN24 COME.—Clause (i) of section 856(d)(7)(C) (relating to ex25 ceptions to impermissible tenant service income) is amend-
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1 ed by inserting ‘‘or through a taxable REIT subsidiary

2 of such trust’’ after ‘‘income’’.

3 (b) CERTAIN INCOME FROM TAXABLE REIT SUB4 SIDIARIES NOT EXCLUDED FROM RENTS FROM REAL

5 PROPERTY.—

6 (1) IN GENERAL.—Subsection (d) of section

7 856 (relating to rents from real property defined) is

8 amended by adding at the end the following new

9 paragraphs:

10 ‘‘(8) SPECIAL RULE FOR TAXABLE REIT SUB11 SIDIARIES.—For purposes of this subsection,

12 amounts paid to a real estate investment trust by a

13 taxable REIT subsidiary of such trust shall not be

14 excluded from rents from real property by reason of

15 paragraph (2)(B) if the requirements of subpara16 graph (A) or (B) are met.

17 ‘‘(A) LIMITED RENTAL EXCEPTION.—The

18 requirements of this subparagraph are met with

19 respect to any property if at least 90 percent of

20 the leased space of the property is rented to

21 persons other than taxable REIT subsidiaries of

22 such trust and other than persons described in

23 section 856(d)(2)(B). The preceding sentence

24 shall apply only to the extent that the amounts

25 paid to the trust as rents from real property (as
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•S 1429 PCS

1 defined in paragraph (1) without regard to

2 paragraph (2)(B)) from such property are sub3 stantially comparable to such rents made by the

4 other tenants of the trust’s property for com5 parable space.

6 ‘‘(B) EXCEPTION FOR CERTAIN LODGING

7 FACILITIES.—The requirements of this subpara8 graph are met with respect to an interest in

9 real property which is a qualified lodging facil10 ity leased by the trust to a taxable REIT sub11 sidiary of the trust if the property is operated

12 on behalf of such subsidiary by a person who is

13 an eligible independent contractor.

14 ‘‘(9) ELIGIBLE INDEPENDENT CONTRACTOR.—

15 For purposes of paragraph (8)(B)—

16 ‘‘(A) IN GENERAL.—The term ‘eligible

17 independent contractor’ means, with respect to

18 any qualified lodging facility, any independent

19 contractor if, at the time such contractor enters

20 into a management agreement or other similar

21 service contract with the taxable REIT sub22 sidiary to operate the facility, such contractor

23 (or any related person) is actively engaged in

24 the trade or business of operating qualified

25 lodging facilities for any person who is not a re-
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•S 1429 PCS

1 lated person with respect to the real estate in2 vestment trust or the taxable REIT subsidiary.

3 ‘‘(B) SPECIAL RULES.—Solely for purposes

4 of this paragraph and paragraph (8)(B), a per5 son shall not fail to be treated as an inde6 pendent contractor with respect to any qualified

7 lodging facility by reason of any of the fol8 lowing:

9 ‘‘(i) The taxable REIT subsidiary

10 bears the expenses for the operation of the

11 facility pursuant to the management agree12 ment or other similar service contract.

13 ‘‘(ii) The taxable REIT subsidiary re14 ceives the revenues from the operation of

15 such facility, net of expenses for such oper16 ation and fees payable to the operator pur17 suant to such agreement or contract.

18 ‘‘(iii) The real estate investment trust

19 receives income from such person with re20 spect to another property that is attrib21 utable to a lease of such other property to

22 such person that was in effect as on the

23 later of—

24 ‘‘(I) January 1, 1999, or
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1 ‘‘(II) the earliest date that any

2 taxable REIT subsidiary of such trust

3 entered into a management agreement

4 or other similar service contract with

5 such person with respect to such

6 qualified lodging facility.

7 ‘‘(C) RENEWALS, ETC., OF EXISTING

8 LEASES.—For purposes of subparagraph

9 (B)(iii)—

10 ‘‘(i) a lease shall be treated as in ef11 fect on January 1, 1999, without regard to

12 its renewal after such date, so long as such

13 renewal is pursuant to the terms of such

14 lease as in effect on whichever of the dates

15 under subparagraph (B)(iii) is the latest,

16 and

17 ‘‘(ii) a lease of a property entered into

18 after whichever of the dates under sub19 paragraph (B)(iii) is the latest shall be

20 treated as in effect on such date if—

21 ‘‘(I) on such date, a lease of such

22 property from the trust was in effect,

23 and

24 ‘‘(II) under the terms of the new

25 lease, such trust receives a substan-
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•S 1429 PCS

1 tially similar or lesser benefit in com2 parison to the lease referred to in sub3 clause (I).

4 ‘‘(D) QUALIFIED LODGING FACILITY.—For

5 purposes of this paragraph—

6 ‘‘(i) IN GENERAL.—The term ‘quali7 fied lodging facility’ means any lodging fa8 cility unless wagering activities are con9 ducted at or in connection with such facil10 ity by any person who is engaged in the

11 business of accepting wagers and who is le12 gally authorized to engage in such business

13 at or in connection with such facility.

14 ‘‘(ii) LODGING FACILITY.—The term

15 ‘lodging facility’ means a hotel, motel, or

16 other establishment more than one-half of

17 the dwelling units in which are used on a

18 transient basis.

19 ‘‘(iii) CUSTOMARY AMENITIES AND FA20 CILITIES.—The term ‘lodging facility’ in21 cludes customary amenities and facilities

22 operated as part of, or associated with, the

23 lodging facility so long as such amenities

24 and facilities are customary for other prop25 erties of a comparable size and class owned
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•S 1429 PCS

1 by other owners unrelated to such real es2 tate investment trust.

3 ‘‘(E) OPERATE INCLUDES MANAGE.—Ref4 erences in this paragraph to operating a prop5 erty shall be treated as including a reference to

6 managing the property.

7 ‘‘(F) RELATED PERSON.—Persons shall be

8 treated as related to each other if such persons

9 are treated as a single employer under sub10 section (a) or (b) of section 52.’’

11 (2) CONFORMING AMENDMENT.—Subparagraph

12 (B) of section 856(d)(2) is amended by inserting

13 ‘‘except as provided in paragraph (8),’’ after ‘‘(B)’’.

14 SEC. 1023. TAXABLE REIT SUBSIDIARY.

15 (a) IN GENERAL.—Section 856 is amended by adding

16 at the end the following new subsection:

17 ‘‘(l) TAXABLE REIT SUBSIDIARY.—For purposes of

18 this part—

19 ‘‘(1) IN GENERAL.—The term ‘taxable REIT

20 subsidiary’ means, with respect to a real estate in21 vestment trust, a corporation (other than a real es22 tate investment trust) if—

23 ‘‘(A) such trust directly or indirectly owns

24 stock in such corporation, and
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•S 1429 PCS

1 ‘‘(B) such trust and such corporation joint2 ly elect that such corporation shall be treated as

3 a taxable REIT subsidiary of such trust for

4 purposes of this part.

5 Such an election, once made, shall be irrevocable un6 less both such trust and corporation consent to its

7 revocation. Such election, and any revocation there8 of, may be made without the consent of the Sec9 retary.

10 ‘‘(2) 35 PERCENT OWNERSHIP IN ANOTHER

11 TAXABLE REIT SUBSIDIARY.—The term ‘taxable

12 REIT subsidiary’ includes, with respect to any real

13 estate investment trust, any corporation (other than

14 a real estate investment trust) with respect to which

15 a taxable REIT subsidiary of such trust owns di16 rectly or indirectly—

17 ‘‘(A) securities possessing more than 35

18 percent of the total voting power of the out19 standing securities of such corporation, or

20 ‘‘(B) securities having a value of more

21 than 35 percent of the total value of the out22 standing securities of such corporation.

23 The preceding sentence shall not apply to a qualified

24 REIT subsidiary (as defined in subsection (i)(2)).
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1 The rule of section 856(c)(7) shall apply for pur2 poses of subparagraph (B).

3 ‘‘(3) EXCEPTIONS.—The term ‘taxable REIT

4 subsidiary’ shall not include—

5 ‘‘(A) any corporation which directly or in6 directly operates or manages a lodging facility

7 or a health care facility, and

8 ‘‘(B) any corporation which directly or in9 directly provides to any other person (under a

10 franchise, license, or otherwise) rights to any

11 brand name under which any lodging facility or

12 health care facility is operated.

13 Subparagraph (B) shall not apply to rights provided

14 to an eligible independent contractor to operate or

15 manage a lodging facility if such rights are held by

16 such corporation as a franchisee, licensee, or in a

17 similar capacity and such lodging facility is either

18 owned by such corporation or is leased to such cor19 poration from the real estate investment trust.

20 ‘‘(4) DEFINITIONS.—For purposes of paragraph

21 (3)—

22 ‘‘(A) LODGING FACILITY.—The term ‘lodg23 ing facility’ has the meaning given to such term

24 by paragraph (9)(D)(ii).
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•S 1429 PCS

1 ‘‘(B) HEALTH CARE FACILITY.—The term

2 ‘health care facility’ has the meaning given to

3 such term by subsection (e)(6)(D)(ii).’’

4 (b) CONFORMING AMENDMENT.—Paragraph (2) of

5 section 856(i) is amended by adding at the end the fol6 lowing new sentence: ‘‘Such term shall not include a tax7 able REIT subsidiary.’’

8 SEC. 1024. LIMITATION ON EARNINGS STRIPPING.

9 Paragraph (3) of section 163(j) (relating to limitation

10 on deduction for interest on certain indebtedness) is

11 amended by striking ‘‘and’’ at the end of subparagraph

12 (A), by striking the period at the end of subparagraph

13 (B) and inserting ‘‘, and’’, and by adding at the end the

14 following new subparagraph:

15 ‘‘(C) any interest paid or accrued (directly

16 or indirectly) by a taxable REIT subsidiary (as

17 defined in section 856(l)) of a real estate invest18 ment trust to such trust.’’

19 SEC. 1025. 100 PERCENT TAX ON IMPROPERLY ALLOCATED

20 AMOUNTS.

21 (a) IN GENERAL.—Subsection (b) of section 857 (re22 lating to method of taxation of real estate investment

23 trusts and holders of shares or certificates of beneficial

24 interest) is amended by redesignating paragraphs (7) and
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1 (8) as paragraphs (8) and (9), respectively, and by insert2 ing after paragraph (6) the following new paragraph:

3 ‘‘(7) INCOME FROM REDETERMINED RENTS, RE4 DETERMINED DEDUCTIONS, AND EXCESS INTER5 EST.—

6 ‘‘(A) IMPOSITION OF TAX.—There is here7 by imposed for each taxable year of the real es8 tate investment trust a tax equal to 100 percent

9 of redetermined rents, redetermined deductions,

10 and excess interest.

11 ‘‘(B) REDETERMINED RENTS.—

12 ‘‘(i) IN GENERAL.—The term ‘redeter13 mined rents’ means rents from real prop14 erty (as defined in subsection 856(d)) the

15 amount of which would (but for subpara16 graph (E)) be reduced on distribution, ap17 portionment, or allocation under section

18 482 to clearly reflect income as a result of

19 services furnished or rendered by a taxable

20 REIT subsidiary of the real estate invest21 ment trust to a tenant of such trust.

22 ‘‘(ii) EXCEPTION FOR CERTAIN SERV23 ICES.—Clause (i) shall not apply to

24 amounts received directly or indirectly by a

25 real estate investment trust for services de-
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1 scribed in paragraph (1)(B) or (7)(C)(i) of

2 section 856(d).

3 ‘‘(iii) EXCEPTION FOR DE MINIMIS

4 AMOUNTS.—Clause (i) shall not apply to

5 amounts described in section 856(d)(7)(A)

6 with respect to a property to the extent

7 such amounts do not exceed the one per8 cent threshold described in section

9 856(d)(7)(B) with respect to such prop10 erty.

11 ‘‘(iv) EXCEPTION FOR COMPARABLY

12 PRICED SERVICES.—Clause (i) shall not

13 apply to any service rendered by a taxable

14 REIT subsidiary of a real estate invest15 ment trust to a tenant of such trust if—

16 ‘‘(I) such subsidiary renders a

17 significant amount of similar services

18 to persons other than such trust and

19 tenants of such trust who are unre20 lated (within the meaning of section

21 856(d)(8)(F)) to such subsidiary,

22 trust, and tenants, but

23 ‘‘(II) only to the extent the

24 charge for such service so rendered is

25 substantially comparable to the charge
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1 for the similar services rendered to

2 persons referred to in subclause (I).

3 ‘‘(v) EXCEPTION FOR CERTAIN SEPA4 RATELY CHARGED SERVICES.—Clause (i)

5 shall not apply to any service rendered by

6 a taxable REIT subsidiary of a real estate

7 investment trust to a tenant of such trust

8 if—

9 ‘‘(I) the rents paid to the trust

10 by tenants (leasing at least 25 percent

11 of the net leasable space in the trust’s

12 property) who are not receiving such

13 service from such subsidiary are sub14 stantially comparable to the rents

15 paid by tenants leasing comparable

16 space who are receiving such service

17 from such subsidiary, and

18 ‘‘(II) the charge for such service

19 from such subsidiary is separately

20 stated.

21 ‘‘(vi) EXCEPTION FOR CERTAIN SERV22 ICES BASED ON SUBSIDIARY’S INCOME

23 FROM THE SERVICES.—Clause (i) shall not

24 apply to any service rendered by a taxable

25 REIT subsidiary of a real estate invest-
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1 ment trust to a tenant of such trust if the

2 gross income of such subsidiary from such

3 service is not less than 150 percent of such

4 subsidiary’s direct cost in furnishing or

5 rendering the service.

6 ‘‘(vii) EXCEPTIONS GRANTED BY SEC7 RETARY.—The Secretary may waive the

8 tax otherwise imposed by subparagraph

9 (A) if the trust establishes to the satisfac10 tion of the Secretary that rents charged to

11 tenants were established on an arms’

12 length basis even though a taxable REIT

13 subsidiary of the trust provided services to

14 such tenants.

15 ‘‘(C) REDETERMINED DEDUCTIONS.—The

16 term ‘redetermined deductions’ means deduc17 tions (other than redetermined rents) of a tax18 able REIT subsidiary of a real estate invest19 ment trust if the amount of such deductions

20 would (but for subparagraph (E)) be increased

21 on distribution, apportionment, or allocation

22 under section 482 to clearly reflect income as

23 between such subsidiary and such trust.

24 ‘‘(D) EXCESS INTEREST.—The term ‘ex25 cess interest’ means any deductions for interest
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1 payments by a taxable REIT subsidiary of a

2 real estate investment trust to such trust to the

3 extent that the interest payments are in excess

4 of a rate that is commercially reasonable.

5 ‘‘(E) COORDINATION WITH SECTION 482.—

6 The imposition of tax under subparagraph (A)

7 shall be in lieu of any distribution, apportion8 ment, or allocation under section 482.

9 ‘‘(F) REGULATORY AUTHORITY.—The Sec10 retary shall prescribe such regulations as may

11 be necessary or appropriate to carry out the

12 purposes of this paragraph. Until the Secretary

13 prescribes such regulations, real estate invest14 ment trusts and their taxable REIT subsidi15 aries may base their allocations on any reason16 able method.’’

17 (b) AMOUNT SUBJECT TO TAX NOT REQUIRED TO

18 BE DISTRIBUTED.—Subparagraph (E) of section

19 857(b)(2) (relating to real estate investment trust taxable

20 income) is amended by striking ‘‘paragraph (5)’’ and in21 serting ‘‘paragraphs (5) and (7)’’.

22 SEC. 1026. EFFECTIVE DATE.

23 (a) IN GENERAL.—The amendments made by this

24 part shall apply to taxable years beginning after December

25 31, 2000.
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1 (b) TRANSITIONAL RULES RELATED TO SECTION

2 1021.—

3 (1) EXISTING ARRANGEMENTS.—

4 (A) IN GENERAL.—Except as otherwise

5 provided in this paragraph, the amendment

6 made by section 1021 shall not apply to a real

7 estate investment trust with respect to—

8 (i) securities of a corporation held di9 rectly or indirectly by such trust on July

10 12, 1999,

11 (ii) securities of a corporation held by

12 an entity on July 12, 1999, if such trust

13 acquires control of such entity pursuant to

14 a written binding contract in effect on such

15 date and at all times thereafter before such

16 acquisition,

17 (iii) securities received by such trust

18 (or a successor) in exchange for, or with

19 respect to, securities described in clause (i)

20 or (ii) in a transaction in which gain or

21 loss is not recognized, and

22 (iv) securities acquired directly or in23 directly by such trust as part of a reorga24 nization (as defined in section 368(a)(1) of

25 the Internal Revenue Code of 1986) with
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•S 1429 PCS

1 respect to such trust if such securities are

2 described in clause (i), (ii), or (iii) with re3 spect to any other real estate investment

4 trust.

5 (B) NEW TRADE OR BUSINESS OR SUB6 STANTIAL NEW ASSETS.—Subparagraph (A)

7 shall cease to apply to securities of a corpora8 tion as of the first day after July 12, 1999, on

9 which such corporation engages in a substantial

10 new line of business, or acquires any substantial

11 asset, other than—

12 (i) pursuant to a binding contract in

13 effect on such date and at all times there14 after before the acquisition of such asset,

15 (ii) in a transaction in which gain or

16 loss is not recognized by reason of section

17 1031 or 1033 of the Internal Revenue

18 Code of 1986, or

19 (iii) in a reorganization (as so de20 fined) with another corporation the securi21 ties of which are described in paragraph

22 (1)(A) of this subsection.

23 (2) TAX-FREE CONVERSION.—If—

24 (A) at the time of an election for a cor25 poration to become a taxable REIT subsidiary,
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•S 1429 PCS

1 the amendment made by section 1021 does not

2 apply to such corporation by reason of para3 graph (1), and

4 (B) such election first takes effect before

5 January 1, 2004,

6 such election shall be treated as a reorganization

7 qualifying under section 368(a)(1)(A) of such Code.

8 PART II—HEALTH CARE REITS

9 SEC. 1031. HEALTH CARE REITS.

10 (a) SPECIAL FORECLOSURE RULE FOR HEALTH

11 CARE PROPERTIES.—Subsection (e) of section 856 (relat12 ing to special rules for foreclosure property) is amended

13 by adding at the end the following new paragraph:

14 ‘‘(6) SPECIAL RULE FOR QUALIFIED HEALTH

15 CARE PROPERTIES.—For purposes of this

16 subsection—

17 ‘‘(A) ACQUISITION AT EXPIRATION OF

18 LEASE.—The term ‘foreclosure property’ shall

19 include any qualified health care property ac20 quired by a real estate investment trust as the

21 result of the termination of a lease of such

22 property (other than a termination by reason of

23 a default, or the imminence of a default, on the

24 lease).
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1 ‘‘(B) GRACE PERIOD.—In the case of a

2 qualified health care property which is fore3 closure property solely by reason of subpara4 graph (A), in lieu of applying paragraphs (2)

5 and (3)—

6 ‘‘(i) the qualified health care property

7 shall cease to be foreclosure property as of

8 the close of the second taxable year after

9 the taxable year in which such trust ac10 quired such property, and

11 ‘‘(ii) if the real estate investment

12 trust establishes to the satisfaction of the

13 Secretary that an extension of the grace

14 period in clause (i) is necessary to the or15 derly leasing or liquidation of the trust’s

16 interest in such qualified health care prop17 erty, the Secretary may grant 1 or more

18 extensions of the grace period for such

19 qualified health care property.

20 Any such extension shall not extend the grace

21 period beyond the close of the 6th year after

22 the taxable year in which such trust acquired

23 such qualified health care property.

24 ‘‘(C) INCOME FROM INDEPENDENT CON25 TRACTORS.—For purposes of applying para-
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•S 1429 PCS

1 graph (4)(C) with respect to qualified health

2 care property which is foreclosure property by

3 reason of subparagraph (A) or paragraph (1),

4 income derived or received by the trust from an

5 independent contractor shall be disregarded to

6 the extent such income is attributable to—

7 ‘‘(i) any lease of property in effect on

8 the date the real estate investment trust

9 acquired the qualified health care property

10 (without regard to its renewal after such

11 date so long as such renewal is pursuant to

12 the terms of such lease as in effect on such

13 date), or

14 ‘‘(ii) any lease of property entered

15 into after such date if—

16 ‘‘(I) on such date, a lease of such

17 property from the trust was in effect,

18 and

19 ‘‘(II) under the terms of the new

20 lease, such trust receives a substan21 tially similar or lesser benefit in com22 parison to the lease referred to in sub23 clause (I).

24 ‘‘(D) QUALIFIED HEALTH CARE PROP25 ERTY.—
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•S 1429 PCS

1 ‘‘(i) IN GENERAL.—The term ‘quali2 fied health care property’ means any real

3 property (including interests therein), and

4 any personal property incident to such real

5 property, which—

6 ‘‘(I) is a health care facility, or

7 ‘‘(II) is necessary or incidental to

8 the use of a health care facility.

9 ‘‘(ii) HEALTH CARE FACILITY.—For

10 purposes of clause (i), the term ‘health

11 care facility’ means a hospital, nursing fa12 cility, assisted living facility, congregate

13 care facility, qualified continuing care facil14 ity (as defined in section 7872(g)(4)), or

15 other licensed facility which extends med16 ical or nursing or ancillary services to pa17 tients and which, immediately before the

18 termination, expiration, default, or breach

19 of the lease of or mortgage secured by

20 such facility, was operated by a provider of

21 such services which was eligible for partici22 pation in the medicare program under title

23 XVIII of the Social Security Act with re24 spect to such facility.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 2000.

4 PART III—CONFORMITY WITH REGULATED

5 INVESTMENT COMPANY RULES

6 SEC. 1041. CONFORMITY WITH REGULATED INVESTMENT

7 COMPANY RULES.

8 (a) DISTRIBUTION REQUIREMENT.—Clauses (i) and

9 (ii) of section 857(a)(1)(A) (relating to requirements ap10 plicable to real estate investment trusts) are each amended

11 by striking ‘‘95 percent (90 percent for taxable years be12 ginning before January 1, 1980)’’ and inserting ‘‘90 per13 cent’’.

14 (b) IMPOSITION OF TAX.—Clause (i) of section

15 857(b)(5)(A) (relating to imposition of tax in case of fail16 ure to meet certain requirements) is amended by striking

17 ‘‘95 percent (90 percent in the case of taxable years begin18 ning before January 1, 1980)’’ and inserting ‘‘90 per19 cent’’.

20 (c) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to taxable years beginning after

22 December 31, 2000.
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1 PART IV—CLARIFICATION OF EXCEPTION FROM

2 IMPERMISSIBLE TENANT SERVICE INCOME

3 SEC. 1051. CLARIFICATION OF EXCEPTION FOR INDE4 PENDENT OPERATORS.

5 (a) IN GENERAL.—Paragraph (3) of section 856(d)

6 (relating to independent contractor defined) is amended

7 by adding at the end the following flush sentence:

8 ‘‘In the event that any class of stock of either the

9 real estate investment trust or such person is regu10 larly traded on an established securities market, only

11 persons who own, directly or indirectly, more than 5

12 percent of such class of stock shall be taken into ac13 count as owning any of the stock of such class for

14 purposes of applying the 35 percent limitation set

15 forth in subparagraph (B) (but all of the out16 standing stock of such class shall be considered out17 standing in order to compute the denominator for

18 purpose of determining the applicable percentage of

19 ownership).’’

20 (b) EFFECTIVE DATE.—The amendment made by

21 this section shall apply to taxable years beginning after

22 December 31, 2000.
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1 PART V—MODIFICATION OF EARNINGS AND

2 PROFITS RULES

3 SEC. 1061. MODIFICATION OF EARNINGS AND PROFITS

4 RULES.

5 (a) RULES FOR DETERMINING WHETHER REGU6 LATED INVESTMENT COMPANY HAS EARNINGS AND

7 PROFITS FROM NON-RIC YEAR.—Subsection (c) of sec8 tion 852 is amended by adding at the end the following

9 new paragraph:

10 ‘‘(3) DISTRIBUTIONS TO MEET REQUIREMENTS

11 OF SUBSECTION (a)(2)(B).—Any distribution which

12 is made in order to comply with the requirements of

13 subsection (a)(2)(B)—

14 ‘‘(A) shall be treated for purposes of this

15 subsection and subsection (a)(2)(B) as made

16 from the earliest earnings and profits accumu17 lated in any taxable year to which the provi18 sions of this part did not apply rather than the

19 most recently accumulated earnings and profits,

20 and

21 ‘‘(B) to the extent treated under subpara22 graph (A) as made from accumulated earnings

23 and profits, shall not be treated as a distribu24 tion for purposes of subsection (b)(2)(D) and

25 section 855.’’
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•S 1429 PCS

1 (b) CLARIFICATION OF APPLICATION OF REIT

2 SPILLOVER DIVIDEND RULES TO DISTRIBUTIONS TO

3 MEET QUALIFICATION REQUIREMENT.—Subparagraph

4 (B) of section 857(d)(3) is amended by inserting before

5 the period ‘‘and section 858’’.

6 (c) APPLICATION OF DEFICIENCY DIVIDEND PROCE7 DURES.—Paragraph (1) of section 852(e) is amended by

8 adding at the end the following new sentence: ‘‘If the de9 termination under subparagraph (A) is solely as a result

10 of the failure to meet the requirements of subsection

11 (a)(2), the preceding sentence shall also apply for pur12 poses of applying subsection (a)(2) to the non-RIC year.’’

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to distributions after December 31,

15 2000.

16 PART VI—STUDY RELATING TO TAXABLE REIT

17 SUBSIDIARIES

18 SEC. 1071. STUDY RELATING TO TAXABLE REIT SUBSIDI19 ARIES.

20 The Commissioner of the Internal Revenue shall con21 duct a study to determine how many taxable REIT sub22 sidiaries are in existence and the aggregate amount of

23 taxes paid by such subsidiaries. The Secretary shall sub24 mit a report to the Congress describing the results of such

25 study.
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1 Subtitle D—Private Activity Bond

2 Volume Cap

3 SEC. 1081. INCREASE IN VOLUME CAP ON PRIVATE ACTIV4 ITY BONDS.

5 (a) IN GENERAL.—The table contained in section

6 146(d)(2) (relating to per capita limit; aggregate limit) is

7 amended by striking ‘‘2002’’, ‘‘2003’’, ‘‘2004’’, ‘‘2005’’,

8 ‘‘2006’’, and ‘‘2007’’ and inserting ‘‘2000’’, ‘‘2001’’,

9 ‘‘2002’’, ‘‘2003’’, ‘‘2004’’, and ‘‘2005’’, respectively.

10 (b) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to calendar years after 2000.

12 Subtitle E—Leasehold

13 Improvements Depreciation

14 SEC. 1091. RECOVERY PERIOD FOR DEPRECIATION OF CER15 TAIN LEASEHOLD IMPROVEMENTS.

16 (a) 15-YEAR RECOVERY PERIOD.—Subparagraph

17 (E) of section 168(e)(3) (relating to 15-year property) is

18 amended by striking ‘‘and’’ at the end of clause (ii), by

19 striking the period at the end of clause (iii) and inserting

20 ‘‘, and’’, and by adding at the end the following new

21 clause:

22 ‘‘(iv) any qualified leasehold improve23 ment property.’’
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•S 1429 PCS

1 (b) QUALIFIED LEASEHOLD IMPROVEMENT PROP2 ERTY.—Subsection (e) of section 168 is amended by add3 ing at the end the following new paragraph:

4 ‘‘(6) QUALIFIED LEASEHOLD IMPROVEMENT

5 PROPERTY.—

6 ‘‘(A) IN GENERAL.—The term ‘qualified

7 leasehold improvement property’ means any im8 provement to an interior portion of a building

9 which is nonresidential real property if—

10 ‘‘(i) such improvement is made under

11 or pursuant to a lease (as defined in sub12 section (h)(7))—

13 ‘‘(I) by the lessee (or any subles14 see) of such portion, or

15 ‘‘(II) by the lessor of such por16 tion,

17 ‘‘(ii) the original use of such improve18 ment begins with the lessee and after De19 cember 31, 2002,

20 ‘‘(iii) such portion is to be occupied

21 exclusively by the lessee (or any sublessee)

22 of such portion, and

23 ‘‘(iv) such improvement is placed in

24 service more than 3 years after the date

25 the building was first placed in service.
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1 ‘‘(B) CERTAIN IMPROVEMENTS NOT IN2 CLUDED.—Such term shall not include any im3 provement for which the expenditure is attrib4 utable to—

5 ‘‘(i) the enlargement of the building,

6 ‘‘(ii) any elevator or escalator,

7 ‘‘(iii) any structural component bene8 fiting a common area, and

9 ‘‘(iv) the internal structural frame10 work of the building.

11 ‘‘(C) DEFINITIONS AND SPECIAL RULES.—

12 For purposes of this paragraph—

13 ‘‘(i) COMMITMENT TO LEASE TREAT14 ED AS LEASE.—A commitment to enter

15 into a lease shall be treated as a lease, and

16 the parties to such commitment shall be

17 treated as lessor and lessee, respectively, if

18 the lease is in effect at the time the prop19 erty is placed in service.

20 ‘‘(ii) RELATED PERSONS.—A lease be21 tween related persons shall not be consid22 ered a lease. For purposes of the preceding

23 sentence, the term ‘related persons’

24 means—
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•S 1429 PCS

1 ‘‘(I) members of an affiliated

2 group (as defined in section 1504),

3 and

4 ‘‘(II) persons having a relation5 ship described in subsection (b) of

6 section 267(b) or 707(b)(1); except

7 that, for purposes of this clause, the

8 phrase ‘80 percent or more’ shall be

9 substituted for the phrase ‘more than

10 50 percent’ each place it appears in

11 such subsections.’’

12 (c) REQUIREMENT TO USE STRAIGHT LINE METH13 OD.—Paragraph (3) of section 168(b) is amended by add14 ing at the end the following new subparagraph:

15 ‘‘(G) Qualified leasehold improvement

16 property described in subsection (e)(6).’’

17 (d) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to qualified leasehold improvement

19 property placed in service after December 31, 2002.
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1 TITLE XI—MISCELLANEOUS

2 PROVISIONS

3 SEC. 1101. REPEAL OF CERTAIN MOTOR FUEL EXCISE

4 TAXES ON FUEL USED BY RAILROADS AND ON

5 INLAND WATERWAY TRANSPORTATION.

6 (a) REPEAL OF 4.3-CENT MOTOR FUEL EXCISE

7 TAXES ON RAILROADS AND INLAND WATERWAY TRANS8 PORTATION WHICH REMAIN IN GENERAL FUND.—

9 (1) TAXES ON TRAINS.—

10 (A) IN GENERAL.—Subparagraph (A) of

11 section 4041(a)(1) is amended by striking ‘‘or

12 a diesel-powered train’’ each place it appears

13 and by striking ‘‘or train’’.

14 (B) CONFORMING AMENDMENTS.—

15 (i) Subparagraph (C) of section

16 4041(a)(1) is amended by striking clause

17 (ii) and by redesignating clause (iii) as

18 clause (ii).

19 (ii) Subparagraph (C) of section

20 4041(b)(1) is amended by striking all that

21 follows ‘‘section 6421(e)(2)’’ and inserting

22 a period.

23 (iii) Paragraph (3) of section 4083(a)

24 is amended by striking ‘‘or a diesel-pow25 ered train’’.
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1 (iv) Section 6427(l) is amended by

2 striking paragraph (3) and by redesig3 nating paragraphs (4) and (5) as para4 graphs (3) and (4), respectively.

5 (2) FUEL USED ON INLAND WATERWAYS.—

6 (A) IN GENERAL.—Paragraph (1) of sec7 tion 4042(b) is amended by adding ‘‘and’’ at

8 the end of subparagraph (A), by striking ‘‘,

9 and’’ at the end of subparagraph (B) and in10 serting a period, and by striking subparagraph

11 (C).

12 (B) CONFORMING AMENDMENT.—Para13 graph (2) of section 4042(b) is amended by

14 striking subparagraph (C).

15 (b) EFFECTIVE DATE.—The amendments made by

16 this subsection shall take effect on October 1, 2000.

17 SEC. 1102. TAX TREATMENT OF ALASKA NATIVE SETTLE18 MENT TRUSTS.

19 (a) TAX EXEMPTION.—Section 501(c), as amended

20 by section 801(a), is amended by adding at the end the

21 following new paragraph:

22 ‘‘(29) A trust which—

23 ‘‘(A) constitutes a Settlement Trust under

24 section 39 of the Alaska Native Claims Settle25 ment Act (43 U.S.C. 1629e), and
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•S 1429 PCS

1 ‘‘(B) with respect to which an election

2 under subsection (p)(2) is in effect.’’

3 (b) SPECIAL RULES RELATING TO TAXATION OF

4 ALASKA NATIVE SETTLEMENT TRUSTS.—Section 501 is

5 amended by redesignating subsection (p) as subsection (q)

6 and by inserting after subsection (o) the following new

7 subsection:

8 ‘‘(p) SPECIAL RULES FOR TAXATION OF ALASKA NA9 TIVE SETTLEMENT TRUSTS.—

10 ‘‘(1) IN GENERAL.—For purposes of this title,

11 the following rules shall apply in the case of a Set12 tlement Trust:

13 ‘‘(A) ELECTING TRUST.—If an election

14 under paragraph (2) is in effect for any taxable

15 year—

16 ‘‘(i) no amount shall be includible in

17 the gross income of a beneficiary of the

18 Settlement Trust by reason of a contribu19 tion to the Settlement Trust made during

20 such taxable year, and

21 ‘‘(ii) except as provided in this sub22 section, the provisions of subchapter J and

23 section 1(e) shall not apply to the Settle24 ment Trust and its beneficiaries for such

25 taxable year.
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•S 1429 PCS

1 ‘‘(B) NONELECTING TRUST.—If an elec2 tion is not in effect under paragraph (2) for

3 any taxable year, the provisions of subchapter J

4 and section 1(e) shall apply to the Settlement

5 Trust and its beneficiaries for such taxable

6 year.

7 ‘‘(2) ONE-TIME ELECTION.—

8 ‘‘(A) IN GENERAL.—A Settlement Trust

9 may elect to have the provisions of this sub10 section and subsection (c)(29) apply to the

11 trust and its beneficiaries.

12 ‘‘(B) TIME AND METHOD OF ELECTION.—

13 An election under subparagraph (A) shall be

14 made—

15 ‘‘(i) before the due date (including ex16 tensions) for filing the Settlement Trust’s

17 return of tax for the 1st taxable year of

18 the Settlement Trust ending after Decem19 ber 31, 1999, and

20 ‘‘(ii) by attaching to such return of

21 tax a statement specifically providing for

22 such election.

23 ‘‘(C) PERIOD ELECTION IN EFFECT.—Ex24 cept as provided in paragraph (3), an election

25 under subparagraph (A)—
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•S 1429 PCS

1 ‘‘(i) shall apply to the 1st taxable year

2 described in subparagraph (B)(i) and all

3 subsequent taxable years, and

4 ‘‘(ii) may not be revoked once it is

5 made.

6 ‘‘(3) SPECIAL RULES WHERE TRANSFER RE7 STRICTIONS MODIFIED.—

8 ‘‘(A) TRANSFER OF BENEFICIAL INTER9 ESTS.—If, at any time, a beneficial interest in

10 a Settlement Trust may be disposed of in a

11 manner which would not be permitted by sec12 tion 7(h) of the Alaska Native Claims Settle13 ment Act (43 U.S.C. 1606(h)) if the interest

14 were Settlement Common Stock—

15 ‘‘(i) no election may be made under

16 paragraph (2)(A) with respect to such

17 trust, and

18 ‘‘(ii) if an election under paragraph

19 (2)(A) is in effect as of such time—

20 ‘‘(I) such election is revoked as of

21 the 1st day of the taxable year fol22 lowing the taxable year in which such

23 disposition is first permitted, and

24 ‘‘(II) there is hereby imposed on

25 such trust a tax equal to the product
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1 of the fair market value of the assets

2 held by the trust as of the close of the

3 taxable year in which such disposition

4 is first permitted and the highest rate

5 of tax under section 1(e) for such tax6 able year.

7 The tax imposed by clause (ii)(II) shall be in

8 lieu of any other tax imposed by this chapter

9 for the taxable year.

10 ‘‘(B) STOCK IN CORPORATION.—If—

11 ‘‘(i) the Settlement Common Stock in

12 any Native Corporation which transferred

13 assets to a Settlement Trust making an

14 election under paragraph (2)(A) may be

15 disposed of in a manner not permitted by

16 section 7(h) of the Alaska Native Claims

17 Settlement Act (43 U.S.C. 1606(h)), and

18 ‘‘(ii) at any time after such disposi19 tion of stock is first permitted, such cor20 poration transfers assets to such trust,

21 clause (ii) of subparagraph (A) shall be applied

22 to such trust on and after the date of the trans23 fer in the same manner as if the trust per24 mitted dispositions of beneficial interests in the
340

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1 trust in a manner not permitted by such section

2 7(h).

3 ‘‘(C) ADMINISTRATIVE PROVISIONS.—For

4 purposes of subtitle F, any tax imposed by sub5 paragraph (A)(ii)(II) shall be treated as an ex6 cise tax with respect to which the deficiency

7 procedures of such subtitle apply.

8 ‘‘(4) DISTRIBUTION REQUIREMENT ON ELECT9 ING SETTLEMENT TRUST.—

10 ‘‘(A) IN GENERAL.—If an election is in ef11 fect under paragraph (2) for any taxable year,

12 a Settlement Trust shall distribute at least 55

13 percent of its adjusted taxable income for such

14 taxable year.

15 ‘‘(B) TAX IMPOSED IF INSUFFICIENT DIS16 TRIBUTION.—If a Settlement Trust fails to

17 meet the distribution requirement of subpara18 graph (A) for any taxable year, then, notwith19 standing subsection (c)(29), a tax shall be im20 posed on the trust under section 1(e) on an

21 amount of taxable income equal to the amount

22 of such failure.

23 ‘‘(C) DESIGNATION OF DISTRIBUTION.—

24 Solely for purposes of meeting the requirements

25 of this paragraph, a Settlement Trust may elect
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1 to treat any distribution (or portion) during the

2 65-day period following the close of any taxable

3 year as made on the last day of such taxable

4 year. Any such distribution (or portion) may

5 not be taken into account under this paragraph

6 for any other taxable year.

7 ‘‘(D) ADJUSTED TAXABLE INCOME.—For

8 purposes of this paragraph, the term ‘adjusted

9 taxable income’ means taxable income deter10 mined under section 641(b) without regard to

11 any deduction under section 651 or 661.

12 ‘‘(5) TAX TREATMENT OF DISTRIBUTIONS TO

13 BENEFICIARIES.—

14 ‘‘(A) ELECTING TRUST.—If an election is

15 in effect under paragraph (2) for any taxable

16 year, any distribution to a beneficiary shall be

17 included in gross income of the beneficiary as

18 ordinary income.

19 ‘‘(B) NONELECTING TRUSTS.—Any dis20 tribution to a beneficiary from a Settlement

21 Trust not described in subparagraph (A) shall

22 be includible in income as provided under sub23 chapter J.

24 ‘‘(6) DEFINITIONS.—For purposes of this

25 subsection—
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1 ‘‘(A) NATIVE CORPORATION.—The term

2 ‘Native Corporation’ has the meaning given

3 such term by section 3(m) of the Alaska Native

4 Claims Settlement Act (43 U.S.C. 1602(m)).

5 ‘‘(B) SETTLEMENT TRUST.—The term

6 ‘Settlement Trust’ means a trust which con7 stitutes a Settlement Trust under section 39 of

8 the Alaska Native Claims Settlement Act (43

9 U.S.C. 1629e).’’

10 (c) WITHHOLDING ON DISTRIBUTIONS BY ELECTING

11 ANCSA SETTLEMENT TRUSTS.—Section 3402 is amend12 ed by adding at the end the following new subsection:

13 ‘‘(t) TAX WITHHOLDING ON DISTRIBUTIONS BY

14 ELECTING ANCSA SETTLEMENT TRUSTS.—

15 ‘‘(1) IN GENERAL.—Any Settlement Trust (as

16 defined in section 501(p)(6)(B)) which is exempt

17 from income tax under section 501(c)(29) (in this

18 subsection referred to as an ‘electing trust’) and

19 which makes a payment to any beneficiary shall de20 duct and withhold from such payment a tax in an

21 amount equal to such payment’s proportionate share

22 of the annualized tax.

23 ‘‘(2) EXCEPTION.—The tax imposed by para24 graph (1) shall not apply to any payment to the ex25 tent that such payment, when annualized, does not
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1 exceed an amount equal to the amount in effect

2 under section 6012(a)(1)(A)(i) for taxable years be3 ginning in the calendar year in which the payment

4 is made.

5 ‘‘(3) ANNUALIZED TAX.—For purposes of para6 graph (1), the term ‘annualized tax’ means, with re7 spect to any payment, the amount of tax which

8 would be imposed by section 1(c) (determined with9 out regard to any rate of tax in excess of 31 per10 cent) on an amount of taxable income equal to the

11 excess of—

12 ‘‘(A) the annualized amount of such pay13 ment, over

14 ‘‘(B) the amount determined under para15 graph (2).

16 ‘‘(4) ANNUALIZATION.—For purposes of this

17 subsection, amounts shall be annualized in the man18 ner prescribed by the Secretary.

19 ‘‘(5) ALTERNATE WITHHOLDING PROCE20 DURES.—At the election of an electing trust, the tax

21 imposed by this subsection on any payment made by

22 such trust shall be determined in accordance with

23 such tables or computational procedures as may be

24 specified in regulations prescribed by the Secretary
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1 (in lieu of in accordance with paragraphs (2) and

2 (3)).

3 ‘‘(6) COORDINATION WITH OTHER SECTIONS.—

4 For purposes of this chapter and so much of subtitle

5 F as relates to this chapter, payments which are

6 subject to withholding under this subsection shall be

7 treated as if they were wages paid by an employer

8 to an employee.’’

9 (d) REPORTING.—Section 6041 is amended by add10 ing at the end the following new subsection:

11 ‘‘(f) APPLICATION TO ALASKA NATIVE SETTLEMENT

12 TRUSTS.—In the case of any distribution from a Settle13 ment Trust (as defined in section 501(p)(6)(B)) to a bene14 ficiary, this section shall apply, except that—

15 ‘‘(1) this section shall apply to such distribution

16 without regard to the amount thereof,

17 ‘‘(2) the Settlement Trust shall include on any

18 return or statement required by this section infor19 mation as to the character of such distribution (if

20 applicable) and the amount of tax imposed by chap21 ter 1 which has been deducted and withheld from

22 such distribution, and

23 ‘‘(3) the filing of any return or statement re24 quired by this section shall satisfy any requirement

25 to file any other form or schedule under this title
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1 with respect to distributive share information (in2 cluding any form or schedule to be included with the

3 trust’s tax return).’’

4 (e) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to taxable years of Settlement

6 Trusts ending after December 31, 1999, and to contribu7 tions to such trusts after such date.

8 SEC. 1103. LONG-TERM UNUSED CREDITS ALLOWED

9 AGAINST MINIMUM TAX.

10 (a) IN GENERAL.—Subsection (c) of section 53 (re11 lating to limitation) is amended by adding at the end the

12 following:

13 ‘‘(2) SPECIAL RULE FOR CORPORATIONS WITH

14 LONG-TERM UNUSED CREDITS.—

15 ‘‘(A) IN GENERAL.—If—

16 ‘‘(i) a corporation to which section

17 56(g) applies has a long-term unused min18 imum tax credit for a taxable year, and

19 ‘‘(ii) no credit would be allowable

20 under this section for the taxable year by

21 reason of paragraph (1),

22 then there shall be allowed a credit under sub23 section (a) for the taxable year in the amount

24 determined under subparagraph (B).
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1 ‘‘(B) AMOUNT OF CREDIT.—For purposes

2 of subparagraph (A), the amount of the credit

3 shall be equal to the least of the following for

4 the taxable year:

5 ‘‘(i) The long-term unused minimum

6 tax credit.

7 ‘‘(ii) 50 percent of the taxpayer’s ten8 tative minimum tax.

9 ‘‘(iii) The excess (if any) of the

10 amount under paragraph (1)(B) over the

11 amount under paragraph (1)(A).

12 ‘‘(C) LONG-TERM UNUSED MINIMUM TAX

13 CREDIT.—For purposes of this paragraph—

14 ‘‘(i) IN GENERAL.—The long-term un15 used minimum tax credit for any taxable

16 year is the portion of the minimum tax

17 credit determined under subsection (b) at18 tributable to the adjusted net minimum tax

19 for taxable years beginning after 1986 and

20 ending before the 5th taxable year imme21 diately preceding the taxable year for

22 which the determination is being made.

23 ‘‘(ii) FIRST-IN, FIRST-OUT ORDERING

24 RULE.—For purposes of clause (i), credits
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1 shall be treated as allowed under sub2 section (a) on a first-in, first-out basis.’’

3 (b) CONFORMING AMENDMENTS.—Section 53(c) (as

4 in effect before the amendment made by subsection (a))

5 is amended—

6 (1) by striking ‘‘The’’ and inserting the fol7 lowing:

8 ‘‘(1) IN GENERAL.—The’’; and

9 (2) by redesignating paragraphs (1) and (2) as

10 subparagraphs (A) and (B), respectively.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to taxable years beginning after

13 December 31, 2003.

14 SEC. 1104. 5-YEAR NET OPERATING LOSS CARRYBACK FOR

15 LOSSES ATTRIBUTABLE TO OPERATING MIN16 ERAL INTERESTS OF INDEPENDENT OIL AND

17 GAS PRODUCERS.

18 (a) IN GENERAL.—Paragraph (1) of section 172(b)

19 (relating to years to which loss may be carried) is amended

20 by adding at the end the following new subparagraph:

21 ‘‘(H) LOSSES ON OPERATING MINERAL IN22 TERESTS OF INDEPENDENT OIL AND GAS PRO23 DUCERS.—In the case of a taxpayer—
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1 ‘‘(i) which has an eligible oil and gas

2 loss (as defined in subsection (j)) for a tax3 able year, and

4 ‘‘(ii) which is not an integrated oil

5 company (as defined in section 291(b)(4)),

6 such eligible oil and gas loss shall be a net op7 erating loss carryback to each of the 5 taxable

8 years preceding the taxable year of such loss.’’

9 (b) ELIGIBLE OIL AND GAS LOSS.—Section 172 is

10 amended by redesignating subsection (j) as subsection (k)

11 and by inserting after subsection (i) the following new sub12 section:

13 ‘‘(j) ELIGIBLE OIL AND GAS LOSS.—For purposes of

14 this section—

15 ‘‘(1) IN GENERAL.—The term ‘eligible oil and

16 gas loss’ means the lesser of—

17 ‘‘(A) the amount which would be the net

18 operating loss for the taxable year if only in19 come and deductions attributable to operating

20 mineral interests (as defined in section 614(d))

21 in oil and gas wells are taken into account, or

22 ‘‘(B) the amount of the net operating loss

23 for such taxable year.

24 ‘‘(2) COORDINATION WITH SUBSECTION

25 (b)(2).—For purposes of applying subsection (b)(2),
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1 an eligible oil and gas loss for any taxable year shall

2 be treated in a manner similar to the manner in

3 which a specified liability loss is treated.

4 ‘‘(3) ELECTION.—Any taxpayer entitled to a 5-

5 year carryback under subsection (b)(1)(H) from any

6 loss year may elect to have the carryback period

7 with respect to such loss year determined without re8 gard to subsection (b)(1)(H).’’

9 (c) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to net operating losses for taxable

11 years beginning after December 31, 1998.

12 SEC. 1105. ELECTION TO EXPENSE GEOLOGICAL AND GEO13 PHYSICAL EXPENDITURES.

14 (a) IN GENERAL.—Section 263 (relating to capital

15 expenditures) is amended by adding at the end the fol16 lowing:

17 ‘‘(j) GEOLOGICAL AND GEOPHYSICAL EXPENDI18 TURES FOR DOMESTIC OIL AND GAS WELLS.—Notwith19 standing subsection (a), a taxpayer may elect to treat geo20 logical and geophysical expenses incurred in connection

21 with the exploration for, or development of, oil or gas with22 in the United States (as defined in section 638) as ex23 penses which are not chargeable to capital account. Any

24 expenses so treated shall be allowed as a deduction in the

25 taxable year in which paid or incurred.’’
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1 (b) CONFORMING AMENDMENT.—Section 263A(c)(3)

2 is amended by inserting ‘‘263(j),’’ after ‘‘263(i),’’.

3 (c) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to expenses paid or incurred in

5 taxable years beginning after December 31, 1999.

6 SEC. 1106. ELECTION TO EXPENSE DELAY RENTAL PAY7 MENTS

8 (a) IN GENERAL.—Section 263 (relating to capital

9 expenditures), as amended by section 1105(a), is amended

10 by adding at the end the following:

11 ‘‘(k) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL

12 AND GAS WELLS.—

13 ‘‘(1) IN GENERAL.—Notwithstanding subsection

14 (a), a taxpayer may elect to treat delay rental pay15 ments incurred in connection with the development

16 of oil or gas within the United States (as defined in

17 section 638) as payments which are not chargeable

18 to capital account. Any payments so treated shall be

19 allowed as a deduction in the taxable year in which

20 paid or incurred.

21 ‘‘(2) DELAY RENTAL PAYMENTS.—For purposes

22 of paragraph (1), the term ‘delay rental payment’

23 means an amount paid for the privilege of deferring

24 development of an oil or gas well.’’
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1 (b) CONFORMING AMENDMENT.—Section

2 263A(c)(3), as amended by section 1105(b), is amended

3 by inserting ‘‘263(k),’’ after ‘‘263(j),’’.

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to payments made or incurred in

6 taxable years beginning after December 31, 1999.

7 SEC. 1107. MODIFICATION OF ACTIVE BUSINESS DEFINI8 TION UNDER SECTION 355.

9 (a) IN GENERAL.—Section 355(b) (defining active

10 conduct of a trade or business) is amended by adding at

11 the end the following new paragraph:

12 ‘‘(3) SPECIAL RULES RELATING TO ACTIVE

13 BUSINESS REQUIREMENT.—

14 ‘‘(A) IN GENERAL.—For purposes of deter15 mining whether a corporation meets the re16 quirement of paragraph (2)(A), all members of

17 such corporation’s separate affiliated group

18 shall be treated as 1 corporation. For purposes

19 of the preceding sentence, a corporation’s sepa20 rate affiliated group is the affiliated group

21 which would be determined under section

22 1504(a) if such corporation were the common

23 parent and section 1504(b) did not apply.

24 ‘‘(B) CONTROL.—For purposes of para25 graph (2)(D), all distributee corporations which
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1 are members of the same affiliated group (as

2 defined in section 1504(a) without regard to

3 section 1504(b)) shall be treated as 1 dis4 tributee corporation.’’

5 (b) CONFORMING AMENDMENTS.—

6 (1) Subparagraph (A) of section 355(b)(2) is

7 amended to read as follows:

8 ‘‘(A) it is engaged in the active conduct of

9 a trade or business,’’.

10 (2) Section 355(b)(2) is amended by striking

11 the last sentence.

12 (c) EFFECTIVE DATE.—

13 (1) IN GENERAL.—The amendments made by

14 this section shall apply to distributions after the

15 date of the enactment of this Act.

16 (2) TRANSITION RULE.—The amendments

17 made by this section shall not apply to any distribu18 tion pursuant to a transaction which is—

19 (A) made pursuant to an agreement which

20 was binding on such date and at all times

21 thereafter,

22 (B) described in a ruling request submitted

23 to the Internal Revenue Service on or before

24 such date, or
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1 (C) described on or before such date in a

2 public announcement or in a filing with the Se3 curities and Exchange Commission.

4 (3) ELECTION TO HAVE AMENDMENTS

5 APPLY.—Paragraph (2) shall not apply if the dis6 tributing corporation elects not to have such para7 graph apply to distributions of such corporation.

8 Any such election, once made, shall be irrevocable.

9 SEC. 1108. TEMPORARY SUSPENSION OF MAXIMUM

10 AMOUNT OF AMORTIZABLE REFORESTATION

11 EXPENDITURES.

12 (a) INCREASE IN DOLLAR LIMITATION.—Paragraph

13 (1) of section 194(b) (relating to amortization of reforest14 ation expenditures) is amended by striking ‘‘$10,000

15 ($5,000’’ and inserting ‘‘$25,000 ($12,500’’.

16 (b) TEMPORARY SUSPENSION OF INCREASED DOL17 LAR LIMITATION.—Subsection (b) of section 194(b) (re18 lating to amortization of reforestation expenditures) is

19 amended by adding at the end the following new para20 graph:

21 ‘‘(5) SUSPENSION OF DOLLAR LIMITATION.—

22 Paragraph (1) shall not apply to taxable years be23 ginning after December 31, 1999, and before Janu24 ary 1, 2004.
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1 (c) CONFORMING AMENDMENT.—Paragraph (1) of

2 section 48(b) is amended by striking ‘‘section 194(b)(1)’’

3 and inserting ‘‘section 194(b)(1) and without regard to

4 section 194(b)(5)’’.

5 (d) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to taxable years beginning after

7 December 31, 1999.

8 SEC. 1109. MODIFICATION OF EXCISE TAX IMPOSED ON

9 ARROW COMPONENTS.

10 (a) IN GENERAL.—Paragraph (2) of section 4161(b)

11 (relating to bows and arrows, etc.) is amended to read as

12 follows:

13 ‘‘(2) ARROWS.—

14 ‘‘(A) IN GENERAL.—There is hereby im15 posed on the sale by the manufacturer, pro16 ducer, or importer of any shaft, point, article

17 used to attach a point to a shaft, nock, or vane

18 of a type used in the manufacture of any arrow

19 which after its assembly—

20 ‘‘(i) measures 18 inches overall or

21 more in length, or

22 ‘‘(ii) measures less than 18 inches

23 overall in length but is suitable for use

24 with a bow described in paragraph (1)(A),
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1 a tax equal to 12.4 percent of the price for

2 which so sold.

3 ‘‘(B) REDUCED RATE ON CERTAIN HUNT4 ING POINTS.—Subparagraph (A) shall be ap5 plied by substituting ‘11 percent’ for ‘12.4 per6 cent’ in the case of a point which is designed

7 primarily for use in hunting fish or large ani8 mals.’’

9 (b) EFFECTIVE DATE.—The amendment made by

10 this section shall apply to articles sold by the manufac11 turer, producer, or importer after the close of the first cal12 endar month ending more than 30 days after the date of

13 the enactment of this Act.

14 SEC. 1110. INCREASE IN THRESHOLD FOR JOINT COM15 MITTEE REPORTS ON REFUNDS AND CRED16 ITS.

17 (a) GENERAL RULE.—Subsections (a) and (b) of sec18 tion 6405 are each amended by striking ‘‘$1,000,000’’ and

19 inserting ‘‘$2,000,000’’.

20 (b) EFFECTIVE DATE.—The amendment made by

21 subsection (a) shall take effect on the date of the enact22 ment of this Act, except that such amendment shall not

23 apply with respect to any refund or credit with respect

24 to a report that has been made before such date of enact-
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1 ment under section 6405 of the Internal Revenue Code

2 of 1986.

3 SEC. 1111. MODIFICATION OF RURAL AIRPORT DEFINITION.

4 (a) IN GENERAL.—Clause (ii) of section

5 4261(e)(1)(B) (defining rural airport) is amended by

6 striking the period at the end of subclause (II) and insert7 ing ‘‘, or’’, and by adding at the end the following new

8 subclause:

9 ‘‘(III) is not connected by paved

10 roads to another airport.’’

11 (b) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to calendar years beginning after

13 1999.

14 SEC. 1112. PAYMENT OF DIVIDENDS ON STOCK OF CO15 OPERATIVES WITHOUT REDUCING PATRON16 AGE DIVIDENDS.

17 (a) IN GENERAL.—Subsection (a) of section 1388

18 (relating to patronage dividend defined) is amended by

19 adding at the end the following: ‘‘For purposes of para20 graph (3), net earnings shall not be reduced by amounts

21 paid during the year as dividends on capital stock or other

22 proprietary capital interests of the organization to the ex23 tent that the articles of incorporation or bylaws of such

24 organization or other contract with patrons provide that

25 such dividends are in addition to amounts otherwise pay-
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1 able to patrons which are derived from business done with

2 or for patrons during the taxable year.’’

3 (b) EFFECTIVE DATE.—The amendment made by

4 this section shall apply to distributions in taxable years

5 beginning after the date of the enactment of this Act.

6 SEC. 1113. CONSOLIDATION OF LIFE INSURANCE COMPA7 NIES WITH OTHER CORPORATIONS.

8 (a) IN GENERAL.—Section 1504(b) (defining includ9 ible corporation) is amended by striking paragraph (2).

10 (b) CONFORMING AMENDMENTS.—

11 (1) Section 1504 is amended by striking sub12 section (c) and by redesignating subsections (d), (e),

13 and (f) as subsections (c), (d), and (e), respectively.

14 (2) Section 1503(c)(1) (relating to special rule

15 for application of certain losses against income of in16 surance companies taxed under section 801) is

17 amended by striking ‘‘an election under section

18 1504(c)(2) is in effect for the taxable year and’’.

19 (c) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to taxable years beginning after

21 December 31, 2000.

22 (d) NO CARRYBACK BEFORE JANUARY 1, 2001.—To

23 the extent that a consolidated net operating loss is allowed

24 or increased by reason of the amendments made by this
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1 section, such loss may not be carried back to a taxable

2 year beginning before January 1, 2001.

3 (e) NONTERMINATION OF GROUP.—No affiliated

4 group shall terminate solely as a result of the amendments

5 made by this section.

6 (f) WAIVER OF 5-YEAR WAITING PERIOD.—Under

7 regulations prescribed by the Secretary of the Treasury

8 or his delegate, an automatic waiver from the 5-year wait9 ing period for reconsolidation provided in section

10 1504(a)(3) of the Internal Revenue Code of 1986 shall

11 be granted to any corporation which was previously an in12 cludible corporation but was subsequently deemed a non13 includible corporation as a result of becoming a subsidiary

14 of a corporation which was not an includible corporation

15 solely by operation of section 1504(c)(2) of such Code (as

16 in effect on the day before the date of the enactment of

17 this Act).

18 SEC. 1114. EXPANSION OF EXEMPTION FROM PERSONAL

19 HOLDING COMPANY TAX FOR LENDING OR FI20 NANCE COMPANIES.

21 (a) IN GENERAL.—Paragraph (6) of section 542(c)

22 (defining personal holding company) is amended—

23 (1) by striking ‘‘rents,’’ in subparagraph (B),

24 and
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1 (2) by adding ‘‘and’’ at the end of subpara2 graph (B),

3 (3) by striking subparagraph (C), and

4 (4) by redesignating subparagraph (D) as sub5 paragraph (C).

6 (b) EXCEPTION FOR LENDING OR FINANCE COMPA7 NIES DETERMINED ON AFFILIATED GROUP BASIS.—Sub8 section (d) of section 542 is amended by striking para9 graphs (1) and (2) and inserting the following new para10 graphs:

11 ‘‘(1) LENDING OR FINANCE BUSINESS DE12 FINED.— For purposes of subsection (c)(6), the

13 term ‘lending or finance business’ means a business

14 of—

15 ‘‘(A) making loans,

16 ‘‘(B) purchasing or discounting accounts

17 receivable, notes, or installment obligations,

18 ‘‘(C) engaging in leasing (including enter19 ing into leases and purchasing, servicing, and

20 disposing of leases and leased assets),

21 ‘‘(D) rendering services or making facilities

22 available in the ordinary course of a lending or

23 finance business.

24 ‘‘(E) rendering services or making facilities

25 available in connection with activities described
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1 in subparagraphs (A), (B), and (C) carried on

2 by the corporation rendering services or making

3 facilities available, or

4 ‘‘(F) rendering services or making facilities

5 available to another corporation which is en6 gaged in the lending or finance business (within

7 the meaning of this paragraph), if such services

8 or facilities are related to the lending or finance

9 business (within such meaning) of such other

10 corporation and such other corporation and the

11 corporation rendering services or making facili12 ties available are members of the same affili13 ated group (as defined in section 1504).

14 ‘‘(2) EXCEPTION DETERMINED ON AN AFFILI15 ATED GROUP BASIS.—In the case of a lending or fi16 nance company which is a member of an affiliated

17 group (as defined in section 1504), such company

18 shall be treated as meeting the requirements of sub19 section (c)(6) if such group (determined by taking

20 into account only members of such group which are

21 engaged in a lending or finance business) meets such

22 requirements.’’

23 (c) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to taxable years ending after De25 cember 31, 1999.
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1 SEC. 1115. CREDIT FOR MODIFICATIONS TO INTER-CITY

2 BUSES REQUIRED UNDER THE AMERICANS

3 WITH DISABILITIES ACT OF 1990.

4 (a) IN GENERAL.—Subsection (a) of section 44 (re5 lating to expenditures to provide access to disabled individ6 uals) is amended to read as follows:

7 ‘‘(a) GENERAL RULE.—For purposes of section 38,

8 the amount of the disabled access credit determined under

9 this section for any taxable year shall be an amount equal

10 to the sum of—

11 ‘‘(1) in the case of an eligible small business, 50

12 percent of so much of the eligible access expendi13 tures for the taxable year as exceed $250 but do not

14 exceed $10,250, and

15 ‘‘(2) 50 percent of so much of the eligible bus

16 access expenditures for the taxable year with respect

17 to each eligible bus as exceed $250 but do not ex18 ceed $30,250.’’

19 (b) ELIGIBLE BUS ACCESS EXPENDITURES.—Sec20 tion 44 is amended by redesignating subsections (d) and

21 (e) as subsections (e) and (f), respectively, and by insert22 ing after subsection (c) the following new subsection:

23 ‘‘(d) ELIGIBLE BUS ACCESS EXPENDITURES.—For

24 purposes of this section—

25 ‘‘(1) IN GENERAL.—The term ‘eligible bus ac26 cess expenditures’ means amounts paid or incurred
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1 by the taxpayer for the purpose of enabling the tax2 payer’s eligible bus to comply with applicable re3 quirements under the Americans With Disabilities

4 Act of 1990 (as in effect on the date of the enact5 ment of this subsection).

6 ‘‘(2) CERTAIN EXPENDITURES NOT IN7 CLUDED.—The amount of eligible bus access ex8 penditures otherwise taken into account under sub9 section (a)(2) shall be reduced to the extent that

10 funds for such expenditures are received under any

11 Federal, State, or local program.

12 ‘‘(3) ELIGIBLE BUS.—The term ‘eligible bus’

13 means any automobile bus eligible for a refund

14 under section 6427(b) by reason of transportation

15 described in section 6427(b)(1)(A).’’

16 (c) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to taxable years beginning after

18 December 31, 1999, and before January 1, 2012.

19 SEC. 1116. INCREASED DEDUCTIBILITY OF BUSINESS MEAL

20 EXPENSES FOR INDIVIDUALS SUBJECT TO

21 FEDERAL LIMITATIONS ON HOURS OF SERV22 ICE.

23 The table in section 274(n)(3)(B) (relating to special

24 rule for individuals subject to Federal hours of service)

25 is amended—
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1 (1) by striking ‘‘or 2007’’, and

2 (2) by striking ‘‘2008’’ and inserting ‘‘2007’’.

3 SEC. 1117. TAX-EXEMPT FINANCING OF QUALIFIED HIGH4 WAY INFRASTRUCTURE CONSTRUCTION.

5 (a) TREATMENT AS EXEMPT FACILITY BOND.—A

6 bond described in subsection (b) shall be treated as de7 scribed in section 141(e)(1)(A) of the Internal Revenue

8 Code of 1986, except that—

9 (1) section 146 of such Code shall not apply to

10 such bond, and

11 (2) section 147(c)(1) of such Code shall be ap12 plied by substituting ‘‘any portion of’’ for ‘‘25 per13 cent or more’’.

14 (b) BOND DESCRIBED.—

15 (1) IN GENERAL.—A bond is described in this

16 subsection if such bond is issued after December 31,

17 1999, as part of an issue—

18 (A) 95 percent or more of the net proceeds

19 of which are to be used to provide a qualified

20 highway infrastructure project, and

21 (B) to which there has been allocated a

22 portion of the allocation to the project under

23 paragraph (2)(C)(ii) which is equal to the ag24 gregate face amount of bonds to be issued as

25 part of such issue.
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1 (2) QUALIFIED HIGHWAY INFRASTRUCTURE

2 PROJECTS.—

3 (A) IN GENERAL.—For purposes of para4 graph (1), the term ‘‘qualified highway infra5 structure project’’ means a project—

6 (i) for the construction or reconstruc7 tion of a highway, and

8 (ii) designated under subparagraph

9 (B) as an eligible pilot project.

10 (B) ELIGIBLE PILOT PROJECT.—

11 (i) IN GENERAL.—The Secretary of

12 Transportation, in consultation with the

13 Secretary of the Treasury, shall select not

14 more than 15 highway infrastructure

15 projects under section 1216 of the Trans16 portation Equity Act for the 21st Century,

17 as in effect on July 21, 1999, to be pilot

18 projects eligible for tax-exempt financing.

19 (ii) ELIGIBILITY CRITERIA.—In deter20 mining the criteria necessary for the eligi21 bility of pilot projects, the Secretary of

22 Transportation shall include the following:

23 (I) The project must serve the

24 general public.
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1 (II) The project is necessary to

2 evaluate the potential of the private

3 sector’s participation in the provision

4 of the highway infrastructure of the

5 United States.

6 (III) The project must be located

7 on publicly-owned rights-of-way.

8 (IV) The project must be publicly

9 owned or the ownership of the high10 way constructed or reconstructed

11 under the project must revert to the

12 public.

13 (V) The project must be con14 sistent with a transportation plan de15 veloped pursuant to section 134(g) or

16 135(e) of title 23, United States

17 Code.

18 (C) AGGREGATE FACE AMOUNT OF TAX19 EXEMPT FINANCING.—

20 (i) IN GENERAL.—The aggregate face

21 amount of bonds issued pursuant to this

22 section shall not exceed $15,000,000,000,

23 determined without regard to any bond the

24 proceeds of which are used exclusively to

25 refund (other than to advance refund) a
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1 bond issued pursuant to this section (or a

2 bond which is a part of a series of

3 refundings of a bond so issued) if the

4 amount of the refunding bond does not ex5 ceed the outstanding amount of the re6 funded bond.

7 (ii) ALLOCATION.—The Secretary of

8 Transportation, in consultation with the

9 Secretary of the Treasury, shall allocate

10 the amount described in clause (i) among

11 the eligible pilot projects designated under

12 subparagraph (B).

13 (iii) REALLOCATION.—If any portion

14 of an allocation under clause (ii) is unused

15 on the date which is 3 years after such al16 location, the Secretary of Transportation,

17 in consultation with the Secretary of the

18 Treasury, may reallocate such portion

19 among the remaining eligible pilot projects.

20 (c) REPORT.—

21 (1) IN GENERAL.—Not later than the earlier

22 of—

(A) 1 year after either 1 23 ⁄2 of the projects

24 authorized under this section have been identi-
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fied or 1 1 ⁄2 of the total bonds allowable for the

2 projects under this section have been issued, or

3 (B) 7 years after the date of the enact4 ment of this Act,

5 the Secretary of Transportation, in consultation with

6 the Secretary of the Treasury, shall submit the re7 port described in paragraph (2) to the Committees

8 on Finance and on Environment and Public Works

9 of the Senate and the Committees on Ways and

10 Means and on Transportation and Infrastructure of

11 the House of Representatives.

12 (2) CONTENTS.—The report under paragraph

13 (1) shall evaluate the overall success of the program

14 conducted pursuant to this section, including—

15 (A) a description of each project under the

16 program,

17 (B) the extent to which the projects used

18 new technologies, construction techniques, or

19 innovative cost controls that resulted in savings

20 in building the project, and

21 (C) the use and efficiency of the Federal

22 tax subsidy provided by the bond financing.
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1 SEC. 1118. EXPANSION OF DC HOMEBUYER TAX CREDIT.

2 (a) EXTENSION.—Section 1400C(i) (relating to ap3 plication of section) is amended by striking ‘‘2001’’ and

4 inserting ‘‘2002’’.

5 (b) EXPANSION OF INCOME LIMITATION.—Section

6 1400C(b)(1) (relating to limitation based on modified ad7 justed gross income) is amended—

8 (1) by striking ‘‘$110,000’’ in subparagraph

9 (A)(i) and inserting ‘‘$140,000’’, and

10 (2) by inserting ‘‘($40,000 in the case of a joint

11 return)’’ after ‘‘$20,000’’ in subparagraph (B).

12 (c) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to taxable years beginning after

14 December 31, 1999.

15 SEC. 1119. EXTENSION OF DC ZERO PERCENT CAPITAL

16 GAINS RATE.

17 (a) IN GENERAL.—Section 1400B (relating to zero

18 percent capital gains rate) is amended by adding at the

19 end the following new subsection:

20 ‘‘(h) EXTENSION TO ENTIRE DISTRICT OF COLUM21 BIA.—In determining whether any stock or partnership in22 terest which is originally issued after December 31, 1999,

23 or any tangible property acquired by the taxpayer by pur24 chase after December 31, 1999, is a DC Zone asset, sub25 section (d) shall be applied without regard to paragraph

26 (2) thereof.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall take effect on January 1, 2000.

3 SEC. 1120. NATURAL GAS GATHERING LINES TREATED AS 7-

4 YEAR PROPERTY.

5 (a) IN GENERAL.—Subparagraph (C) of section

6 168(e)(3) (relating to classification of certain property) is

7 amended by redesignating clause (ii) as clause (iii) and

8 by inserting after clause (i) the following new clause:

9 ‘‘(ii) any natural gas gathering line,

10 and’’.

11 (b) NATURAL GAS GATHERING LINE.—Subsection (i)

12 of section 168 is amended by adding at the end the fol13 lowing new paragraph:

14 ‘‘(15) NATURAL GAS GATHERING LINE.—The

15 term ‘natural gas gathering line’ means—

16 ‘‘(A) the pipe, equipment, and appur17 tenances determined to be a gathering line by

18 the Federal Energy Regulatory Commission, or

19 ‘‘(B) the pipe, equipment, and appur20 tenances used to deliver natural gas from the

21 wellhead or a common point to the point at

22 which such gas first reaches—

23 ‘‘(i) a gas processing plant,

24 ‘‘(ii) an interconnection with a trans25 mission pipeline certificated by the Federal
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1 Energy Regulatory Commission as an

2 interstate transmission pipeline,

3 ‘‘(iii) an interconnection with an

4 intrastate transmission pipeline, or

5 ‘‘(iv) a direct interconnection with a

6 local distribution company, a gas storage

7 facility, or an industrial consumer.’’.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to property placed in service on

10 or after the date of the enactment of this Act.

11 SEC. 1121. EXEMPTION FROM TICKET TAXES FOR CERTAIN

12 TRANSPORTATION PROVIDED BY SMALL SEA13 PLANES.

14 (a) IN GENERAL.—Section 4281 (relating to small

15 aircraft on nonestablished lines) is amended to read as fol16 lows:

17 ‘‘SEC. 4281. SMALL AIRCRAFT.

18 ‘‘The taxes imposed by sections 4261 and 4271 shall

19 not apply to—

20 ‘‘(1) transportation by an aircraft having a

21 maximum certificated takeoff weight of 6,000

22 pounds or less, except when such aircraft is operated

23 on an established line, and

24 ‘‘(2) transportation by a seaplane having a

25 maximum certificated takeoff weight of 6,000
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1 pounds or less with respect to any segment con2 sisting of a takeoff from, and a landing on, water.

3 For purposes of the preceding sentence, the term ‘max4 imum certificated takeoff weight’ means the maximum

5 such weight contained in the type certificate or airworthi6 ness certificate.’’

7 (b) CLERICAL AMENDMENT.—The table of sections

8 for part III of subchapter C of chapter 33 is amended

9 by striking ‘‘on nonestablished lines’’ in the item relating

10 to section 4281.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall take effect on the date of the enactment

13 of this Act but shall not apply to any amount paid on

14 or before such date with respect to taxes imposed by sec15 tions 4261 and 4271 of the Internal Revenue Code of

16 1986.

17 TITLE XII—EXTENSION OF EX18 PIRED AND EXPIRING PROVI19 SIONS

20 SEC. 1201. PERMANENT EXTENSION AND MODIFICATION OF

21 RESEARCH CREDIT.

22 (a) PERMANENT EXTENSION.—

23 (1) IN GENERAL.—Section 41 (relating to cred24 it for increasing research activities) is amended by

25 striking subsection (h).
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1 (2) CONFORMING AMENDMENT.—Paragraph (1)

2 of section 45C(b) is amended by striking subpara3 graph (D).

4 (3) EFFECTIVE DATE.—The amendments made

5 by this subsection shall apply to amounts paid or in6 curred after June 30, 1999.

7 (b) INCREASE IN PERCENTAGES UNDER ALTER8 NATIVE INCREMENTAL CREDIT.—

9 (1) IN GENERAL.—Subparagraph (A) of section

10 41(c)(4) is amended—

11 (A) by striking ‘‘1.65 percent’’ and insert12 ing ‘‘2.65 percent’’,

13 (B) by striking ‘‘2.2 percent’’ and inserting

14 ‘‘3.2 percent’’, and

15 (C) by striking ‘‘2.75 percent’’ and insert16 ing ‘‘3.75 percent’’.

17 (2) EFFECTIVE DATE.—The amendments made

18 by this subsection shall apply to taxable years begin19 ning after June 30, 1999.

20 SEC. 1202. SUBPART F EXEMPTION FOR ACTIVE FINANCING

21 INCOME.

22 (a) IN GENERAL.—Sections 953(e)(10) and

23 954(h)(9) are each amended—

24 (1) by striking ‘‘the first taxable year’’ and in25 serting ‘‘taxable years’’, and
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1 (2) by striking ‘‘January 1, 2000’’ and insert2 ing ‘‘January 1, 2005’’.

3 (b) EFFECTIVE DATE.—The amendment made by

4 this section shall apply to taxable years beginning after

5 December 31, 1999.

6 SEC. 1203. TAXABLE INCOME LIMIT ON PERCENTAGE DE7 PLETION FOR MARGINAL PRODUCTION.

8 (a) IN GENERAL.—Subparagraph (H) of section

9 613A(c)(6) is amended by striking ‘‘January 1, 2000’’ and

10 inserting ‘‘January 1, 2005’’.

11 (b) EFFECTIVE DATE.—The amendment made by

12 this section shall apply to taxable years beginning after

13 December 31, 1999.

14 SEC. 1204. WORK OPPORTUNITY CREDIT AND WELFARE-TO15 WORK CREDIT.

16 (a) TEMPORARY EXTENSION.—Sections 51(c)(4)(B)

17 and 51A(f) (relating to termination) are each amended by

18 striking ‘‘June 30, 1999’’ and inserting ‘‘June 30, 2004’’.

19 (b) CLARIFICATION OF FIRST YEAR OF EMPLOY20 MENT.—Paragraph (2) of section 51(i) is amended by

21 striking ‘‘during which he was not a member of a targeted

22 group’’.

23 (c) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to individuals who begin work for

25 the employer after June 30, 1999.
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1 SEC. 1205. EXTENSION AND MODIFICATION OF CREDIT FOR

2 PRODUCING ELECTRICITY FROM CERTAIN

3 RENEWABLE RESOURCES.

4 (a) EXTENSION AND MODIFICATION OF PLACED-IN5 SERVICE RULES.—Paragraph (3) of section 45(c) is

6 amended to read as follows:

7 ‘‘(3) QUALIFIED FACILITY.—

8 ‘‘(A) WIND FACILITY.—In the case of a fa9 cility using wind to produce electricity, the term

10 ‘qualified facility’ means any facility owned by

11 the taxpayer which is originally placed in serv12 ice after December 31, 1993, and before July

13 1, 2004.

14 ‘‘(B) CLOSED-LOOP BIOMASS FACILITY.—

15 In the case of a facility using closed-loop bio16 mass to produce electricity, the term ‘qualified

17 facility’ means any facility owned by the tax18 payer which is originally placed in service after

19 December 31, 1992, and before July 1, 2004.

20 ‘‘(C) BIOMASS FACILITY.—In the case of a

21 facility using biomass (other than closed-loop

22 biomass) to produce electricity, the term ‘quali23 fied facility’ means any facility owned by the

24 taxpayer which is originally placed in service be25 fore January 1, 2003.
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1 ‘‘(D) LANDFILL GAS OR POULTRY WASTE

2 FACILITY.—

3 ‘‘(i) IN GENERAL.—In the case of a

4 facility using landfill gas or poultry waste

5 to produce electricity, the term ‘qualified

6 facility’ means any facility of the taxpayer

7 which is originally placed in service after

8 December 31, 1999, and before July 1,

9 2004.

10 ‘‘(ii) LANDFILL GAS.—In the case of a

11 facility using landfill gas, such term shall

12 include equipment and housing (not includ13 ing wells and related systems required to

14 collect and transmit gas to the production

15 facility) required to generate electricity

16 which are owned by the taxpayer and so

17 placed in service.

18 ‘‘(E) SPECIAL RULE.—In the case of a

19 qualified facility described in subparagraph (C),

20 the 10-year period referred to in subsection (a)

21 shall be treated as beginning no earlier than

22 January 1, 2000.’’

23 (b) EXPANSION OF QUALIFIED ENERGY RE24 SOURCES.—
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1 (1) IN GENERAL.—Section 45(c)(1) (defining

2 qualified energy resources) is amended by striking

3 ‘‘and’’ at the end of subparagraph (A), by striking

4 the period at the end of subparagraph (B) and in5 serting a comma, and by adding at the end the fol6 lowing new subparagraphs:

7 ‘‘(C) biomass (other than closed-loop bio8 mass),

9 ‘‘(B) landfill gas, and

10 ‘‘(C) poultry waste.’’

11 (2) DEFINITIONS.—Section 45(c) is amended

12 by redesignating paragraph (3) as paragraph (6)

13 and inserting after paragraph (2) the following new

14 paragraphs:

15 ‘‘(3) BIOMASS.—The term ‘biomass’ means any

16 solid, nonhazardous, cellulosic waste material which

17 is segregated from other waste materials and which

18 is derived from—

19 ‘‘(A) any of the following forest-related re20 sources: mill residues, precommercial thinnings,

21 slash, and brush, but not including old-growth

22 timber,

23 ‘‘(B) urban sources, including waste pal24 lets, crates, and dunnage, manufacturing and

25 construction wood wastes, and landscape or
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1 right-of-way tree trimmings, but not including

2 unsegregated municipal solid waste (garbage)

3 or paper that is commonly recycled, or

4 ‘‘(C) agriculture sources, including orchard

5 tree crops, vineyard, grain, legumes, sugar, and

6 other crop by-products or residues.

7 ‘‘(4) LANDFILL GAS.—The term ‘landfill gas’

8 means gas from the decomposition of any household

9 solid waste, commercial solid waste, and industrial

10 solid waste disposed of in a municipal solid waste

11 landfill unit (as such terms are defined in regula12 tions promulgated under subtitle D of the Solid

13 Waste Disposal Act (42 U.S.C. 6941 et seq.)).

14 ‘‘(5) POULTRY WASTE.—The term ‘poultry

15 waste’ means poultry manure and litter, including

16 wood shavings, straw, rice hulls, and other bedding

17 material for the disposition of manure.’’

18 (c) SPECIAL RULES.—Section 45(d) (relating to defi19 nitions and special rules) is amended by adding at the end

20 the following new paragraphs:

21 ‘‘(6) CREDIT ELIGIBILITY IN THE CASE OF GOV22 ERNMENT-OWNED FACILITIES USING POULTRY

23 WASTE.—In the case of a facility using poultry

24 waste to produce electricity and owned by a govern25 mental unit, the person eligible for the credit under
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1 subsection (a) is the lessor or the operator of such

2 facility.

3 ‘‘(7) PROPORTIONAL CREDIT FOR FACILITY

4 USING COAL TO CO-FIRE WITH CERTAIN BIOMASS.—

5 In the case of a qualified facility as defined in sub6 section (c)(3)(C) using coal to co-fire with biomass

7 (other than closed-loop biomass), the amount of the

8 credit determined under subsection (a) for the tax9 able year shall be reduced by the percentage coal

10 comprises (on a Btu basis) of the average fuel input

11 of the facility for the taxable year.’’

12 (d) EFFECTIVE DATE.—The amendments made by

13 this section shall take effect on the date of the enactment

14 of this Act.

15 SEC. 1206. ALASKA EXEMPTION FROM DYEING REQUIRE16 MENTS.

17 (a) EXCEPTION TO DYEING REQUIREMENTS FOR EX18 EMPT DIESEL FUEL AND KEROSENE.—Paragraph (1) of

19 section 4082(c) (relating to exception to dyeing require20 ments) is amended to read as follows:

21 ‘‘(1) removed, entered, or sold in the State of

22 Alaska for ultimate sale or use in such State, and’’.

23 (b) EFFECTIVE DATE.—The amendment made by

24 this section applies with respect to fuel removed, entered,

25 or sold on or after the date of the enactment of this Act.
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1 SEC. 1207. EXTENSION OF EXPENSING OF ENVIRONMENTAL

2 REMEDIATION COSTS.

3 (a) EXTENSION OF TERMINATION DATE.—Sub4 section (h) of section 198 is amended by striking ‘‘Decem5 ber 31, 2000’’ and inserting ‘‘June 30, 2004’’.

6 (b) EXPANSION OF QUALIFIED CONTAMINATED

7 SITE.—Section 198(c) is amended to read as follows:

8 ‘‘(c) QUALIFIED CONTAMINATED SITE.—For pur9 poses of this section—

10 ‘‘(1) IN GENERAL.—The term ‘qualified con11 taminated site’ means any area—

12 ‘‘(A) which is held by the taxpayer for use

13 in a trade or business or for the production of

14 income, or which is property described in sec15 tion 1221(1) in the hands of the taxpayer, and

16 ‘‘(B) at or on which there has been a re17 lease (or threat of release) or disposal of any

18 hazardous substance.

19 ‘‘(2) NATIONAL PRIORITIES LISTED SITES NOT

20 INCLUDED.—Such term shall not include any site

21 which is on, or proposed for, the national priorities

22 list under section 105(a)(8)(B) of the Comprehen23 sive Environmental Response, Compensation, and

24 Liability Act of 1980 (as in effect on the date of the

25 enactment of this section).
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1 ‘‘(3) TAXPAYER MUST RECEIVE STATEMENT

2 FROM STATE ENVIRONMENTAL AGENCY.—An area

3 shall be treated as a qualified contaminated site with

4 respect to expenditures paid or incurred during any

5 taxable year only if the taxpayer receives a state6 ment from the appropriate agency of the State in

7 which such area is located that such area meets the

8 requirement of paragraph (1)(B).

9 ‘‘(4) APPROPRIATE STATE AGENCY.—For pur10 poses of paragraph (2), the chief executive officer of

11 each State may, in consultation with the Adminis12 trator of the Environmental Protection Agency, des13 ignate the appropriate State environmental agency

14 within 60 days of the date of the enactment of this

15 section. If the chief executive officer of a State has

16 not designated an appropriate State environmental

17 agency within such 60-day period, the appropriate

18 environmental agency for such State shall be des19 ignated by the Administrator of the Environmental

20 Protection Agency.’’

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to expenditures paid or incurred

23 after December 31, 1999.
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1 TITLE XIII—REVENUE OFFSETS

2 Subtitle A—General Provisions

3 SEC. 1301. MODIFICATION TO FOREIGN TAX CREDIT

4 CARRYBACK AND CARRYOVER PERIODS.

5 (a) IN GENERAL.—Section 904(c) (relating to limita6 tion on credit) is amended—

7 (1) by striking ‘‘in the second preceding taxable

8 year,’’, and

9 (2) by striking ‘‘or fifth’’ and inserting ‘‘fifth,

10 sixth, or seventh’’.

11 (b) EFFECTIVE DATE.—The amendment made by

12 subsection (a) shall apply to credits arising in taxable

13 years beginning after December 31, 1999.

14 SEC. 1302. RETURNS RELATING TO CANCELLATIONS OF IN15 DEBTEDNESS BY ORGANIZATIONS LENDING

16 MONEY.

17 (a) IN GENERAL.—Paragraph (2) of section

18 6050P(c) (relating to definitions and special rules) is

19 amended by striking ‘‘and’’ at the end of subparagraph

20 (B), by striking the period at the end of subparagraph

21 (C) and inserting ‘‘, and’’, and by inserting after subpara22 graph (C) the following new subparagraph:

23 ‘‘(D) any organization a significant trade

24 or business of which is the lending of money.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to discharges of indebtedness

3 after December 31, 1999.

4 SEC. 1303. INCREASE IN ELECTIVE WITHHOLDING RATE

5 FOR NONPERIODIC DISTRIBUTIONS FROM

6 DEFERRED COMPENSATION PLANS.

7 (a) IN GENERAL.—Section 3405(b)(1) (relating to

8 withholding) is amended by striking ‘‘10 percent’’ and in9 serting ‘‘15 percent’’.

10 (b) EFFECTIVE DATE.—The amendment made by

11 subsection (a) shall apply to distributions after December

12 31, 2000.

13 SEC. 1304. EXTENSION OF INTERNAL REVENUE SERVICE

14 USER FEES.

15 (a) IN GENERAL.—Chapter 77 (relating to miscella16 neous provisions) is amended by adding at the end the

17 following new section:

18 ‘‘SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.

19 ‘‘(a) GENERAL RULE.—The Secretary shall establish

20 a program requiring the payment of user fees for—

21 ‘‘(1) requests to the Internal Revenue Service

22 for ruling letters, opinion letters, and determination

23 letters, and

24 ‘‘(2) other similar requests.

25 ‘‘(b) PROGRAM CRITERIA.—
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1 ‘‘(1) IN GENERAL.—The fees charged under the

2 program required by subsection (a)—

3 ‘‘(A) shall vary according to categories (or

4 subcategories) established by the Secretary,

5 ‘‘(B) shall be determined after taking into

6 account the average time for (and difficulty of)

7 complying with requests in each category (and

8 subcategory), and

9 ‘‘(C) shall be payable in advance.

10 ‘‘(2) EXEMPTIONS, ETC.—The Secretary shall

11 provide for such exemptions (and reduced fees)

12 under such program as the Secretary determines to

13 be appropriate.

14 ‘‘(3) AVERAGE FEE REQUIREMENT.—The aver15 age fee charged under the program required by sub16 section (a) shall not be less than the amount deter17 mined under the following table:

‘‘Category Average Fee

Employee plan ruling and opinion ........................................... $250

Exempt organization ruling ..................................................... $350

Employee plan determination .................................................. $300

Exempt organization determination ........................................ $275

Chief counsel ruling ................................................................. $200.

18 ‘‘(c) TERMINATION.—No fee shall be imposed under

19 this section with respect to requests made after September

20 30, 2009.’’

21 (b) CONFORMING AMENDMENTS.—
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1 (1) The table of sections for chapter 77 is

2 amended by adding at the end the following new

3 item:

‘‘Sec. 7527. Internal Revenue Service user fees.’’

4 (2) Section 10511 of the Revenue Act of 1987

5 is repealed.

6 (c) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to requests made after the date

8 of the enactment of this Act.

9 SEC. 1305. TRANSFER OF EXCESS DEFINED BENEFIT PLAN

10 ASSETS FOR RETIREE HEALTH BENEFITS.

11 (a) EXTENSION.—

12 (1) IN GENERAL.—Paragraph (5) of section

13 420(b) (relating to expiration) is amended by strik14 ing ‘‘in any taxable year beginning after December

15 31, 2000’’ and inserting ‘‘made after September 30,

16 2009’’.

17 (2) CONFORMING AMENDMENTS.—

18 (A) Section 101(e)(3) of the Employee Re19 tirement Income Security Act of 1974 (29

20 U.S.C. 1021(e)(3)) is amended by striking

21 ‘‘1995’’ and inserting ‘‘2001’’.

22 (B) Section 403(c)(1) of such Act (29

23 U.S.C. 1103(c)(1)) is amended by striking

24 ‘‘1995’’ and inserting ‘‘2001’’.
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1 (C) Paragraph (13) of section 408(b) of

2 such Act (29 U.S.C. 1108(b)(13)) is

3 amended—

4 (i) by striking ‘‘in a taxable year be5 ginning before January 1, 2001’’ and in6 serting ‘‘made before October 1, 2009’’,

7 and

8 (ii) by striking ‘‘1995’’ and inserting

9 ‘‘2001’’.

10 (b) APPLICATION OF MINIMUM COST REQUIRE11 MENTS.—

12 (1) IN GENERAL.—Paragraph (3) of section

13 420(c) is amended to read as follows:

14 ‘‘(3) MINIMUM COST REQUIREMENTS.—

15 ‘‘(A) IN GENERAL.—The requirements of

16 this paragraph are met if each group health

17 plan or arrangement under which applicable

18 health benefits are provided provides that the

19 applicable employer cost for each taxable year

20 during the cost maintenance period shall not be

21 less than the higher of the applicable employer

22 costs for each of the 2 taxable years imme23 diately preceding the taxable year of the quali24 fied transfer.
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1 ‘‘(B) APPLICABLE EMPLOYER COST.—For

2 purposes of this paragraph, the term ‘applicable

3 employer cost’ means, with respect to any tax4 able year, the amount determined by dividing—

5 ‘‘(i) the qualified current retiree

6 health liabilities of the employer for such

7 taxable year determined—

8 ‘‘(I) without regard to any reduc9 tion under subsection (e)(1)(B), and

10 ‘‘(II) in the case of a taxable

11 year in which there was no qualified

12 transfer, in the same manner as if

13 there had been such a transfer at the

14 end of the taxable year, by

15 ‘‘(ii) the number of individuals to

16 whom coverage for applicable health bene17 fits was provided during such taxable year.

18 ‘‘(C) ELECTION TO COMPUTE COST SEPA19 RATELY.—An employer may elect to have this

20 paragraph applied separately with respect to in21 dividuals eligible for benefits under title XVIII

22 of the Social Security Act at any time during

23 the taxable year and with respect to individuals

24 not so eligible.
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1 ‘‘(D) COST MAINTENANCE PERIOD.—For

2 purposes of this paragraph, the term ‘cost

3 maintenance period’ means the period of 5 tax4 able years beginning with the taxable year in

5 which the qualified transfer occurs. If a taxable

6 year is in 2 or more overlapping cost mainte7 nance periods, this paragraph shall be applied

8 by taking into account the highest applicable

9 employer cost required to be provided under

10 subparagraph (A) for such taxable year.’’

11 (2) CONFORMING AMENDMENTS.—

12 (A) Clause (iii) of section 420(b)(1)(C) is

13 amended by striking ‘‘benefits’’ and inserting

14 ‘‘cost’’.

15 (B) Subparagraph (D) of section 420(e)(1)

16 is amended by striking ‘‘and shall not be sub17 ject to the minimum benefit requirements of

18 subsection (c)(3)’’ and inserting ‘‘or in calcu19 lating applicable employer cost under subsection

20 (c)(3)(B)’’.

21 (c) EFFECTIVE DATES.—

22 (1) IN GENERAL.—The amendments made by

23 this section shall apply to qualified transfers occur24 ring after the date of the enactment of this Act.
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1 (2) TRANSITION RULE.—If the cost mainte2 nance period for any qualified transfer after the date

3 of the enactment of this Act includes any portion of

4 a benefit maintenance period for any qualified trans5 fer on or before such date, the amendments made by

6 subsection (b) shall not apply to such portion of the

7 cost maintenance period (and such portion shall be

8 treated as a benefit maintenance period).

9 SEC. 1306. TAX TREATMENT OF INCOME AND LOSS ON DE10 RIVATIVES.

11 (a) IN GENERAL.—Section 1221 (defining capital as12 sets) is amended—

13 (1) by striking ‘‘For purposes’’ and inserting

14 the following:

15 ‘‘(a) IN GENERAL.—For purposes’’,

16 (2) by striking the period at the end of para17 graph (5) and inserting a semicolon, and

18 (3) by adding at the end the following:

19 ‘‘(6) any commodities derivative financial in20 strument held by a commodities derivatives dealer,

21 unless—

22 ‘‘(A) it is established to the satisfaction of

23 the Secretary that such instrument has no con24 nection to the activities of such dealer as a

25 dealer, and
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1 ‘‘(B) such instrument is clearly identified

2 in such dealer’s records as being described in

3 subparagraph (A) before the close of the day on

4 which it was acquired, originated, or entered

5 into (or such other time as the Secretary may

6 by regulations prescribe);

7 ‘‘(7) any hedging transaction which is clearly

8 identified as such before the close of the day on

9 which it was acquired, originated, or entered into (or

10 such other time as the Secretary may by regulations

11 prescribe); or

12 ‘‘(8) supplies of a type regularly used or con13 sumed by the taxpayer in the ordinary course of a

14 trade or business of the taxpayer.

15 ‘‘(b) DEFINITIONS AND SPECIAL RULES.—

16 ‘‘(1) COMMODITIES DERIVATIVE FINANCIAL IN17 STRUMENTS.—For purposes of subsection (a)(6)—

18 ‘‘(A) COMMODITIES DERIVATIVES DEAL19 ER.—The term ‘commodities derivatives dealer’

20 means a person which regularly offers to enter

21 into, assume, offset, assign, or terminate posi22 tions in commodities derivative financial instru23 ments with customers in the ordinary course of

24 a trade or business.
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1 ‘‘(B) COMMODITIES DERIVATIVE FINAN2 CIAL INSTRUMENT.—

3 ‘‘(i) IN GENERAL.—The term ‘com4 modities derivative financial instrument’

5 means any contract or financial instrument

6 with respect to commodities (other than a

7 share of stock in a corporation, a beneficial

8 interest in a partnership or trust, a note,

9 bond, debenture, or other evidence of in10 debtedness, or a section 1256 contract (as

11 defined in section 1256(b)), the value or

12 settlement price of which is calculated by

13 or determined by reference to a specified

14 index.

15 ‘‘(ii) SPECIFIED INDEX.—The term

16 ‘specified index’ means any one or more or

17 any combination of—

18 ‘‘(I) a fixed rate, price, or

19 amount, or

20 ‘‘(II) a variable rate, price, or

21 amount,

22 which is based on any current, objectively

23 determinable financial or economic infor24 mation with respect to commodities which

25 is not within the control of any of the par-
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1 ties to the contract or instrument and is

2 not unique to any of the parties’ cir3 cumstances.

4 ‘‘(2) HEDGING TRANSACTION.—

5 ‘‘(A) IN GENERAL.—For purposes of this

6 section, the term ‘hedging transaction’ means

7 any transaction entered into by the taxpayer in

8 the normal course of the taxpayer’s trade or

9 business primarily—

10 ‘‘(i) to manage risk of price changes

11 or currency fluctuations with respect to or12 dinary property which is held or to be held

13 by the taxpayer,

14 ‘‘(ii) to manage risk of interest rate or

15 price changes or currency fluctuations with

16 respect to borrowings made or to be made,

17 or ordinary obligations incurred or to be

18 incurred, by the taxpayer, or

19 ‘‘(iii) to manage such other risks as

20 the Secretary may prescribe in regulations.

21 ‘‘(B) TREATMENT OF NONIDENTIFICATION

22 OR IMPROPER IDENTIFICATION OF HEDGING

23 TRANSACTIONS.—Notwithstanding subsection

24 (a)(7), the Secretary shall prescribe regulations
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1 to properly characterize any income, gain, ex2 pense, or loss arising from a transaction—

3 ‘‘(i) which is a hedging transaction

4 but which was not identified as such in ac5 cordance with subsection (a)(7), or

6 ‘‘(ii) which was so identified but is not

7 a hedging transaction.

8 ‘‘(3) REGULATIONS.—The Secretary shall pre9 scribe such regulations as are appropriate to carry

10 out the purposes of paragraph (6) and (7) of sub11 section (a) in the case of transactions involving re12 lated parties.’’

13 (b) MANAGEMENT OF RISK.—

14 (1) Section 475(c)(3) is amended by striking

15 ‘‘reduces’’ and inserting ‘‘manages’’.

16 (2) Section 871(h)(4)(C)(iv) is amended by

17 striking ‘‘to reduce’’ and inserting ‘‘to manage’’.

18 (3) Clauses (i) and (ii) of section 988(d)(2)(A)

19 are each amended by striking ‘‘to reduce’’ and in20 serting ‘‘to manage’’.

21 (4) Paragraph (2) of section 1256(e) is amend22 ed to read as follows:

23 ‘‘(2) DEFINITION OF HEDGING TRANSACTION.—

24 For purposes of this subsection, the term ‘hedging

25 transaction’ means any hedging transaction (as de-
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•S 1429 PCS

1 fined in section 1221(b)(2)(A)) if, before the close of

2 the day on which such transaction was entered into

3 (or such earlier time as the Secretary may prescribe

4 by regulations), the taxpayer clearly identifies such

5 transaction as being a hedging transaction.’’

6 (c) CONFORMING AMENDMENTS.—

7 (1) Each of the following sections are amended

8 by striking ‘‘section 1221’’ and inserting ‘‘section

9 1221(a)’’:

10 (A) Section 170(e)(3)(A).

11 (B) Section 170(e)(4)(B).

12 (C) Section 367(a)(3)(B)(i).

13 (D) Section 818(c)(3).

14 (E) Section 865(i)(1).

15 (F) Section 1092(a)(3)(B)(ii)(II).

16 (G) Subparagraphs (C) and (D) of section

17 1231(b)(1).

18 (H) Section 1234(a)(3)(A).

19 (2) Each of the following sections are amended

20 by striking ‘‘section 1221(1)’’ and inserting ‘‘section

21 1221(a)(1)’’:

22 (A) Section 198(c)(1)(A)(i).

23 (B) Section 263A(b)(2)(A).

24 (C) Clauses (i) and (iii) of section

25 267(f)(3)(B).
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1 (D) Section 341(d)(3).

2 (E) Section 543(a)(1)(D)(i).

3 (F) Section 751(d)(1).

4 (G) Section 775(c).

5 (H) Section 856(c)(2)(D).

6 (I) Section 856(c)(3)(C).

7 (J) Section 856(e)(1).

8 (K) Section 856(j)(2)(B).

9 (L) Section 857(b)(4)(B)(i).

10 (M) Section 857(b)(6)(B)(iii).

11 (N) Section 864(c)(4)(B)(iii).

12 (O) Section 864(d)(3)(A).

13 (P) Section 864(d)(6)(A).

14 (Q) Section 954(c)(1)(B)(iii).

15 (R) Section 995(b)(1)(C).

16 (S) Section 1017(b)(3)(E)(i).

17 (T) Section 1362(d)(3)(C)(ii).

18 (U) Section 4662(c)(2)(C).

19 (V) Section 7704(c)(3).

20 (W) Section 7704(d)(1)(D).

21 (X) Section 7704(d)(1)(G).

22 (Y) Section 7704(d)(5).

23 (3) Section 818(b)(2) is amended by striking

24 ‘‘section 1221(2)’’ and inserting ‘‘section

25 1221(a)(2)’’.
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1 (4) Section 1397B(e)(2) is amended by striking

2 ‘‘section 1221(4)’’ and inserting ‘‘section

3 1221(a)(4)’’.

4 (d) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to any instrument held, acquired,

6 or entered into, any transaction entered into, and supplies

7 held or acquired on or after the date of enactment of this

8 Act.

9 Subtitle B—Loophole Closers

10 SEC. 1311. LIMITATION ON USE OF NON-ACCRUAL EXPERI11 ENCE METHOD OF ACCOUNTING.

12 (a) IN GENERAL.—Section 448(d)(5) (relating to

13 special rule for services) is amended—

14 (1) by inserting ‘‘in fields described in para15 graph (2)(A)’’ after ‘‘services by such person’’, and

16 (2) by inserting ‘‘CERTAIN PERSONAL’’ before

17 ‘‘SERVICES’’ in the heading.

18 (b) EFFECTIVE DATE.—

19 (1) IN GENERAL.—The amendments made by

20 this section shall apply to taxable years ending after

21 the date of the enactment of this Act.

22 (2) CHANGE IN METHOD OF ACCOUNTING.—In

23 the case of any taxpayer required by the amend24 ments made by this section to change its method of
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1 accounting for its first taxable year ending after the

2 date of the enactment of this Act—

3 (A) such change shall be treated as initi4 ated by the taxpayer,

5 (B) such change shall be treated as made

6 with the consent of the Secretary of the Treas7 ury, and

8 (C) the net amount of the adjustments re9 quired to be taken into account by the taxpayer

10 under section 481 of the Internal Revenue Code

11 of 1986 shall be taken into account over a pe12 riod (not greater than 4 taxable years) begin13 ning with such first taxable year.

14 SEC. 1312. LIMITATIONS ON WELFARE BENEFIT FUNDS OF

15 10 OR MORE EMPLOYER PLANS.

16 (a) BENEFITS TO WHICH EXCEPTION APPLIES.—

17 Section 419A(f)(6)(A) (relating to exception for 10 or

18 more employer plans) is amended to read as follows:

19 ‘‘(A) IN GENERAL.—This subpart shall not

20 apply to a welfare benefit fund which is part of

21 a 10 or more employer plan if the only benefits

22 provided through the fund are 1 or more of the

23 following:

24 ‘‘(i) Medical benefits.

25 ‘‘(ii) Disability benefits.
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•S 1429 PCS

1 ‘‘(iii) Group term life insurance bene2 fits which do not provide directly or indi3 rectly for any cash surrender value or

4 other money that can be paid, assigned,

5 borrowed, or pledged for collateral for a

6 loan.

7 The preceding sentence shall not apply to any

8 plan which maintains experience-rating arrange9 ments with respect to individual employers.’’

10 (b) LIMITATION ON USE OF AMOUNTS FOR OTHER

11 PURPOSES.—Section 4976(b) (defining disqualified ben12 efit) is amended by adding at the end the following new

13 paragraph:

14 ‘‘(5) SPECIAL RULE FOR 10 OR MORE EM15 PLOYER PLANS EXEMPTED FROM PREFUNDING LIM16 ITS.—For purposes of paragraph (1)(C), if—

17 ‘‘(A) subpart D of part I of subchapter D

18 of chapter 1 does not apply by reason of section

19 419A(f)(6) to contributions to provide 1 or

20 more welfare benefits through a welfare benefit

21 fund under a 10 or more employer plan, and

22 ‘‘(B) any portion of the welfare benefit

23 fund attributable to such contributions is used

24 for a purpose other than that for which the con25 tributions were made,
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1 then such portion shall be treated as reverting to the

2 benefit of the employers maintaining the fund.’’

3 (c) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to contributions paid or accrued

5 after June 9, 1999, in taxable years ending after such

6 date.

7 SEC. 1313. MODIFICATION OF INSTALLMENT METHOD AND

8 REPEAL OF INSTALLMENT METHOD FOR AC9 CRUAL METHOD TAXPAYERS.

10 (a) REPEAL OF INSTALLMENT METHOD FOR AC11 CRUAL BASIS TAXPAYERS.—

12 (1) IN GENERAL.—Subsection (a) of section

13 453 (relating to installment method) is amended to

14 read as follows:

15 ‘‘(a) USE OF INSTALLMENT METHOD.—

16 ‘‘(1) IN GENERAL.—Except as otherwise pro17 vided in this section, income from an installment

18 sale shall be taken into account for purposes of this

19 title under the installment method.

20 ‘‘(2) ACCRUAL METHOD TAXPAYER.—The in21 stallment method shall not apply to income from an

22 installment sale if such income would be reported

23 under an accrual method of accounting without re24 gard to this section. The preceding sentence shall
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1 not apply to a disposition described in subparagraph

2 (A) or (B) of subsection (l)(2).’’

3 (2) CONFORMING AMENDMENTS.—Sections

4 453(d)(1), 453(i)(1), and 453(k) are each amended

5 by striking ‘‘(a)’’ each place it appears and inserting

6 ‘‘(a)(1)’’.

7 (b) MODIFICATION OF PLEDGE RULES.—Paragraph

8 (4) of section 453A(d) (relating to pledges, etc., of install9 ment obligations) is amended by adding at the end the

10 following: ‘‘A payment shall be treated as directly secured

11 by an interest in an installment obligation to the extent

12 an arrangement allows the taxpayer to satisfy all or a por13 tion of the indebtedness with the installment obligation.’’

14 (c) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to sales or other dispositions occur16 ring on or after the date of the enactment of this Act.

17 SEC. 1314. TREATMENT OF GAIN FROM CONSTRUCTIVE

18 OWNERSHIP TRANSACTIONS.

19 (a) IN GENERAL.—Part IV of subchapter P of chap20 ter 1 (relating to special rules for determining capital

21 gains and losses) is amended by inserting after section

22 1259 the following new section:
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1 ‘‘SEC. 1260. GAINS FROM CONSTRUCTIVE OWNERSHIP

2 TRANSACTIONS.

3 ‘‘(a) IN GENERAL.—If the taxpayer has gain from

4 a constructive ownership transaction with respect to any

5 financial asset and such gain would (without regard to this

6 section) be treated as a long-term capital gain—

7 ‘‘(1) such gain shall be treated as ordinary in8 come to the extent that such gain exceeds the net

9 underlying long-term capital gain, and

10 ‘‘(2) to the extent such gain is treated as a

11 long-term capital gain after the application of para12 graph (1), the determination of the capital gain rate

13 (or rates) applicable to such gain under section 1(h)

14 shall be determined on the basis of the respective

15 rate (or rates) that would have been applicable to

16 the net underlying long-term capital gain.

17 ‘‘(b) INTEREST CHARGE ON DEFERRAL OF GAIN

18 RECOGNITION.—

19 ‘‘(1) IN GENERAL.—If any gain is treated as

20 ordinary income for any taxable year by reason of

21 subsection (a)(1), the tax imposed by this chapter

22 for such taxable year shall be increased by the

23 amount of interest determined under paragraph (2)

24 with respect to each prior taxable year during any

25 portion of which the constructive ownership trans26 action was open. Any amount payable under this
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1 paragraph shall be taken into account in computing

2 the amount of any deduction allowable to the tax3 payer for interest paid or accrued during such tax4 able year.

5 ‘‘(2) AMOUNT OF INTEREST.—The amount of

6 interest determined under this paragraph with re7 spect to a prior taxable year is the amount of inter8 est which would have been imposed under section

9 6601 on the underpayment of tax for such year

10 which would have resulted if the gain (which is

11 treated as ordinary income by reason of subsection

12 (a)(1)) had been included in gross income in the tax13 able years in which it accrued (determined by treat14 ing the income as accruing at a constant rate equal

15 to the applicable Federal rate as in effect on the day

16 the transaction closed). The period during which

17 such interest shall accrue shall end on the due date

18 (without extensions) for the return of tax imposed

19 by this chapter for the taxable year in which such

20 transaction closed.

21 ‘‘(3) APPLICABLE FEDERAL RATE.—For pur22 poses of paragraph (2), the applicable Federal rate

23 is the applicable Federal rate determined under

24 1274(d) (compounded semiannually) which would
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1 apply to a debt instrument with a term equal to the

2 period the transaction was open.

3 ‘‘(4) NO CREDITS AGAINST INCREASE IN TAX.—

4 Any increase in tax under paragraph (1) shall not

5 be treated as tax imposed by this chapter for pur6 poses of determining—

7 ‘‘(A) the amount of any credit allowable

8 under this chapter, or

9 ‘‘(B) the amount of the tax imposed by

10 section 55.

11 ‘‘(c) FINANCIAL ASSET.—For purposes of this

12 section—

13 ‘‘(1) IN GENERAL.—The term ‘financial asset’

14 means—

15 ‘‘(A) any equity interest in any pass-thru

16 entity, and

17 ‘‘(B) to the extent provided in

18 regulations—

19 ‘‘(i) any debt instrument, and

20 ‘‘(ii) any stock in a corporation which

21 is not a pass-thru entity.

22 ‘‘(2) PASS-THRU ENTITY.—For purposes of

23 paragraph (1), the term ‘pass-thru entity’ means—

24 ‘‘(A) a regulated investment company,

25 ‘‘(B) a real estate investment trust,
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1 ‘‘(C) an S corporation,

2 ‘‘(D) a partnership,

3 ‘‘(E) a trust,

4 ‘‘(F) a common trust fund,

5 ‘‘(G) a passive foreign investment company

6 (as defined in section 1297 without regard to

7 subsection (e) thereof),

8 ‘‘(H) a foreign personal holding company,

9 ‘‘(I) a foreign investment company (as de10 fined in section 1246(b)), and

11 ‘‘(J) a REMIC.

12 ‘‘(d) CONSTRUCTIVE OWNERSHIP TRANSACTION.—

13 For purposes of this section—

14 ‘‘(1) IN GENERAL.—The taxpayer shall be

15 treated as having entered into a constructive owner16 ship transaction with respect to any financial asset

17 if the taxpayer—

18 ‘‘(A) holds a long position under a notional

19 principal contract with respect to the financial

20 asset,

21 ‘‘(B) enters into a forward or futures con22 tract to acquire the financial asset,

23 ‘‘(C) is the holder of a call option, and is

24 the grantor of a put option, with respect to the

25 financial asset and such options have substan-
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1 tially equal strike prices and substantially con2 temporaneous maturity dates, or

3 ‘‘(D) to the extent provided in regulations

4 prescribed by the Secretary, enters into 1 or

5 more other transactions (or acquires 1 or more

6 positions) that have substantially the same ef7 fect as a transaction described in any of the

8 preceding subparagraphs.

9 ‘‘(2) EXCEPTION FOR POSITIONS WHICH ARE

10 MARKED TO MARKET.—This section shall not apply

11 to any constructive ownership transaction if all of

12 the positions which are part of such transaction are

13 marked to market under any provision of this title

14 or the regulations thereunder.

15 ‘‘(3) LONG POSITION UNDER NOTIONAL PRIN16 CIPAL CONTRACT.—A person shall be treated as

17 holding a long position under a notional principal

18 contract with respect to any financial asset if such

19 person—

20 ‘‘(A) has the right to be paid (or receive

21 credit for) all or substantially all of the invest22 ment yield (including appreciation) on such fi23 nancial asset for a specified period, and
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1 ‘‘(B) is obligated to reimburse (or provide

2 credit for) all or substantially all of any decline

3 in the value of such financial asset.

4 ‘‘(4) FORWARD CONTRACT.—The term ‘forward

5 contract’ means any contract to acquire in the fu6 ture (or provide or receive credit for the future value

7 of) any financial asset.

8 ‘‘(e) NET UNDERLYING LONG-TERM CAPITAL

9 GAIN.—For purposes of this section, in the case of any

10 constructive ownership transaction with respect to any fi11 nancial asset, the term ‘net underlying long-term capital

12 gain’ means the aggregate net capital gain that the tax13 payer would have had if—

14 ‘‘(1) the financial asset had been acquired for

15 fair market value on the date such transaction was

16 opened and sold for fair market value on the date

17 such transaction was closed, and

18 ‘‘(2) only gains and losses that would have re19 sulted from the deemed ownership under paragraph

20 (1) were taken into account.

21 The amount of the net underlying long-term capital gain

22 with respect to any financial asset shall be treated as zero

23 unless the amount thereof is established by clear and con24 vincing evidence.
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1 ‘‘(f) SPECIAL RULE WHERE TAXPAYER TAKES DE2 LIVERY.—Except as provided in regulations prescribed by

3 the Secretary, if a constructive ownership transaction is

4 closed by reason of taking delivery, this section shall be

5 applied as if the taxpayer had sold all the contracts, op6 tions, or other positions which are part of such transaction

7 for fair market value on the closing date. The amount of

8 gain recognized under the preceding sentence shall not ex9 ceed the amount of gain treated as ordinary income under

10 subsection (a). Proper adjustments shall be made in the

11 amount of any gain or loss subsequently realized for gain

12 recognized and treated as ordinary income under this sub13 section.

14 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

15 such regulations as may be necessary or appropriate to

16 carry out the purposes of this section, including

17 regulations—

18 ‘‘(1) to permit taxpayers to mark to market

19 constructive ownership transactions in lieu of apply20 ing this section, and

21 ‘‘(2) to exclude certain forward contracts which

22 do not convey substantially all of the economic re23 turn with respect to a financial asset.’’
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1 (b) CLERICAL AMENDMENT.—The table of sections

2 for part IV of subchapter P of chapter 1 is amended by

3 adding at the end the following new item:

‘‘Sec. 1260. Gains from constructive ownership transactions.’’

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to transactions entered into after

6 July 11, 1999.

7 SEC. 1315. CHARITABLE SPLIT-DOLLAR LIFE INSURANCE,

8 ANNUITY, AND ENDOWMENT CONTRACTS.

9 (a) IN GENERAL.—Subsection (f) of section 170 (re10 lating to disallowance of deduction in certain cases and

11 special rules), as amended by section 807, is amended by

12 adding at the end the following new paragraph:

13 ‘‘(11) SPLIT-DOLLAR LIFE INSURANCE, ANNU14 ITY, AND ENDOWMENT CONTRACTS.—

15 ‘‘(A) IN GENERAL.—Nothing in this sec16 tion or in section 545(b)(2), 556(b)(2), 642(c),

17 2055, 2106(a)(2), or 2522 shall be construed to

18 allow a deduction, and no deduction shall be al19 lowed, for any transfer to or for the use of an

20 organization described in subsection (c) if in

21 connection with such transfer—

22 ‘‘(i) the organization directly or indi23 rectly pays, or has previously paid, any

24 premium on any personal benefit contract

25 with respect to the transferor, or
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1 ‘‘(ii) there is an understanding or ex2 pectation that any person will directly or

3 indirectly pay any premium on any per4 sonal benefit contract with respect to the

5 transferor.

6 ‘‘(B) PERSONAL BENEFIT CONTRACT.—

7 For purposes of subparagraph (A), the term

8 ‘personal benefit contract’ means, with respect

9 to the transferor, any life insurance, annuity, or

10 endowment contract if any direct or indirect

11 beneficiary under such contract is the trans12 feror, any member of the transferor’s family, or

13 any other person (other than an organization

14 described in subsection (c)) designated by the

15 transferor.

16 ‘‘(C) APPLICATION TO CHARITABLE RE17 MAINDER TRUSTS.—In the case of a transfer to

18 a trust referred to in subparagraph (E), ref19 erences in subparagraphs (A) and (F) to an or20 ganization described in subsection (c) shall be

21 treated as a reference to such trust.

22 ‘‘(D) EXCEPTION FOR CERTAIN ANNUITY

23 CONTRACTS.—If, in connection with a transfer

24 to or for the use of an organization described

25 in subsection (c), such organization incurs an
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1 obligation to pay a charitable gift annuity (as

2 defined in section 501(m)) and such organiza3 tion purchases any annuity contract to fund

4 such obligation, persons receiving payments

5 under the charitable gift annuity shall not be

6 treated for purposes of subparagraph (B) as in7 direct beneficiaries under such contract if—

8 ‘‘(i) such organization possesses all of

9 the incidents of ownership under such con10 tract,

11 ‘‘(ii) such organization is entitled to

12 all the payments under such contract, and

13 ‘‘(iii) the timing and amount of pay14 ments under such contract are substan15 tially the same as the timing and amount

16 of payments to each such person under

17 such obligation (as such obligation is in ef18 fect at the time of such transfer).

19 ‘‘(E) EXCEPTION FOR CERTAIN CON20 TRACTS HELD BY CHARITABLE REMAINDER

21 TRUSTS.—A person shall not be treated for pur22 poses of subparagraph (B) as an indirect bene23 ficiary under any life insurance, annuity, or en24 dowment contract held by a charitable remain25 der annuity trust or a charitable remainder
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1 unitrust (as defined in section 664(d)) solely by

2 reason of being entitled to any payment re3 ferred to in paragraph (1)(A) or (2)(A) of sec4 tion 664(d) if—

5 ‘‘(i) such trust possesses all of the in6 cidents of ownership under such contract,

7 and

8 ‘‘(ii) such trust is entitled to all the

9 payments under such contract.

10 ‘‘(F) EXCISE TAX ON PREMIUMS PAID.—

11 ‘‘(i) IN GENERAL.—There is hereby

12 imposed on any organization described in

13 subsection (c) an excise tax equal to the

14 premiums paid by such organization on

15 any life insurance, annuity, or endowment

16 contract if the payment of premiums on

17 such contract is in connection with a trans18 fer for which a deduction is not allowable

19 under subparagraph (A), determined with20 out regard to when such transfer is made.

21 ‘‘(ii) PAYMENTS BY OTHER PER22 SONS.—For purposes of clause (i), pay23 ments made by any other person pursuant

24 to an understanding or expectation re-
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1 ferred to in subparagraph (A) shall be

2 treated as made by the organization.

3 ‘‘(iii) REPORTING.—Any organization

4 on which tax is imposed by clause (i) with

5 respect to any premium shall file an an6 nual return which includes—

7 ‘‘(I) the amount of such premium

8 paid during the year and the name

9 and TIN of each beneficiary under the

10 contract to which the premium re11 lates, and

12 ‘‘(II) such other information as

13 the Secretary may require.

14 The penalties applicable to returns re15 quired under section 6033 shall apply to

16 returns required under this clause. Returns

17 required under this clause shall be fur18 nished at such time and in such manner as

19 the Secretary shall by forms or regulations

20 require.

21 ‘‘(iv) CERTAIN RULES TO APPLY.—

22 The tax imposed by this subparagraph

23 shall be treated as imposed by chapter 42

24 for purposes of this title other than sub25 chapter B of chapter 42.
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1 ‘‘(G) SPECIAL RULE WHERE STATE RE2 QUIRES SPECIFICATION OF CHARITABLE GIFT

3 ANNUITANT IN CONTRACT.—In the case of an

4 obligation to pay a charitable gift annuity re5 ferred to in subparagraph (D) which is entered

6 into under the laws of a State which requires,

7 in order for the charitable gift annuity to be ex8 empt from insurance regulation by such State,

9 that each beneficiary under the charitable gift

10 annuity be named as a beneficiary under an an11 nuity contract issued by an insurance company

12 authorized to transact business in such State,

13 the requirements of clauses (i) and (ii) of sub14 paragraph (D) shall be treated as met if—

15 ‘‘(i) such State law requirement was

16 in effect on February 8, 1999,

17 ‘‘(ii) each such beneficiary under the

18 charitable gift annuity is a bona fide resi19 dent of such State at the time the obliga20 tion to pay a charitable gift annuity is en21 tered into, and

22 ‘‘(iii) the only persons entitled to pay23 ments under such contract are persons en24 titled to payments as beneficiaries under
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1 such obligation on the date such obligation

2 is entered into.

3 ‘‘(H) MEMBER OF FAMILY.—For purposes

4 of this paragraph, an individual’s family con5 sists of the individual’s grandparents, the

6 grandparents of such individual’s spouse, the

7 lineal descendants of such grandparents, and

8 any spouse of such a lineal descendant.

9 ‘‘(I) REGULATIONS.—The Secretary shall

10 prescribe such regulations as may be necessary

11 or appropriate to carry out the purposes of this

12 paragraph, including regulations to prevent the

13 avoidance of such purposes.’’

14 (b) EFFECTIVE DATE.—

15 (1) IN GENERAL.—Except as otherwise pro16 vided in this section, the amendment made by this

17 section shall apply to transfers made after February

18 8, 1999.

19 (2) EXCISE TAX.—Except as provided in para20 graph (3) of this subsection, section 170(f)(11)(F)

21 of the Internal Revenue Code of 1986 (as added by

22 this section) shall apply to premiums paid after the

23 date of the enactment of this Act.

24 (3) REPORTING.—Clause (iii) of such section

25 170(f)(11)(F) shall apply to premiums paid after
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1 February 8, 1999 (determined as if the tax imposed

2 by such section applies to premiums paid after such

3 date).

4 SEC. 1316. RESTRICTION ON USE OF REAL ESTATE INVEST5 MENT TRUSTS TO AVOID ESTIMATED TAX

6 PAYMENT REQUIREMENTS.

7 (a) IN GENERAL.—Subsection (e) of section 6655

8 (relating to estimated tax by corporations) is amended by

9 adding at the end the following new paragraph:

10 ‘‘(5) TREATMENT OF CERTAIN REIT DIVI11 DENDS.—

12 ‘‘(A) IN GENERAL.—Any dividend received

13 from a closely held real estate investment trust

14 by any person which owns (after application of

15 subsections (d)(5) and (l)(3)(B) of section 856)

16 10 percent or more (by vote or value) of the

17 stock or beneficial interests in the trust shall be

18 taken into account in computing annualized in19 come installments under paragraph (2) in a

20 manner similar to the manner under which

21 partnership income inclusions are taken into ac22 count.

23 ‘‘(B) CLOSELY HELD REIT.—For purposes

24 of subparagraph (A), the term ‘closely held real

25 estate investment trust’ means a real estate in-
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1 vestment trust with respect to which 5 or fewer

2 persons own (after application of subsections

3 (d)(5) and (l)(3)(B) of section 856) 50 percent

4 or more (by vote or value) of the stock or bene5 ficial interests in the trust.’’

6 (b) EFFECTIVE DATE.—The amendment made by

7 subsection (a) shall apply to estimated tax payments due

8 on or after September 15, 1999.

9 SEC. 1317. PROHIBITED ALLOCATIONS OF S CORPORATION

10 STOCK HELD BY AN ESOP.

11 (a) IN GENERAL.—Section 409 (relating to qualifica12 tions for tax credit employee stock ownership plans) is

13 amended by redesignating subsection (p) as subsection (q)

14 and by inserting after subsection (o) the following new

15 subsection:

16 ‘‘(p) PROHIBITED ALLOCATION OF SECURITIES IN

17 AN S CORPORATION.—

18 ‘‘(1) IN GENERAL.—An employee stock owner19 ship plan holding employer securities consisting of

20 stock in an S corporation shall provide that no por21 tion of the assets of the plan attributable to (or allo22 cable in lieu of) such employer securities may, dur23 ing a nonallocation year, accrue (or be allocated di24 rectly or indirectly under any plan of the employer
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1 meeting the requirements of section 401(a)) for the

2 benefit of any disqualified individual.

3 ‘‘(2) FAILURE TO MEET REQUIREMENTS.—If a

4 plan fails to meet the requirements of paragraph

5 (1)—

6 ‘‘(A) the plan shall be treated as having

7 distributed to any disqualified individual the

8 amount allocated to the account of such indi9 vidual in violation of paragraph (1) at the time

10 of such allocation,

11 ‘‘(B) the provisions of section 4979A shall

12 apply, and

13 ‘‘(C) the statutory period for the assess14 ment of any tax imposed by section 4979A shall

15 not expire before the date which is 3 years from

16 the later of—

17 ‘‘(i) the allocation of employer securi18 ties resulting in the failure under para19 graph (1) giving rise to such tax, or

20 ‘‘(ii) the date on which the Secretary

21 is notified of such failure.

22 ‘‘(3) NONALLOCATION YEAR.—For purposes of

23 this subsection—

24 ‘‘(A) IN GENERAL.—The term ‘nonalloca25 tion year’ means any plan year of an employee
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1 stock ownership plan if, at any time during

2 such plan year—

3 ‘‘(i) such plan holds employer securi4 ties consisting of stock in an S corpora5 tion, and

6 ‘‘(ii) disqualified individuals own at

7 least 50 percent of the number of out8 standing shares of stock in such S corpora9 tion.

10 ‘‘(B) ATTRIBUTION RULES.—For purposes

11 of subparagraph (A)—

12 ‘‘(i) IN GENERAL.—The rules of sec13 tion 318(a) shall apply for purposes of de14 termining ownership, except that—

15 ‘‘(I) in applying paragraph (1)

16 thereof, the members of an individ17 ual’s family shall include members of

18 the family described in paragraph

19 (4)(D), and

20 ‘‘(II) paragraph (4) thereof shall

21 not apply.

22 ‘‘(ii) DEEMED-OWNED SHARES.—Not23 withstanding the employee trust exception

24 in section 318(a)(2)(B)(i), disqualified in-
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1 dividuals shall be treated as owning

2 deemed-owned shares.

3 ‘‘(4) DISQUALIFIED INDIVIDUAL.—For pur4 poses of this subsection—

5 ‘‘(A) IN GENERAL.—The term ‘disqualified

6 individual’ means any individual who is a par7 ticipant or beneficiary under the employee stock

8 ownership plan if—

9 ‘‘(i) the aggregate number of deemed10 owned shares of such individual and the

11 members of the individual’s family is at

12 least 20 percent of the number of out13 standing shares of stock in the S corpora14 tion constituting employer securities of

15 such plan, or

16 ‘‘(ii) if such individual is not described

17 in clause (i), the number of deemed-owned

18 shares of such individual is at least 10 per19 cent of the number of outstanding shares

20 of stock in such corporation.

21 ‘‘(B) TREATMENT OF FAMILY MEMBERS.—

22 In the case of a disqualified individual described

23 in subparagraph (A)(i), any member of the in24 dividual’s family with deemed-owned shares

25 shall be treated as a disqualified individual if
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1 not otherwise a disqualified individual under

2 subparagraph (A).

3 ‘‘(C) DEEMED-OWNED SHARES.—For pur4 poses of this paragraph—

5 ‘‘(i) IN GENERAL.—The term

6 ‘deemed-owned shares’ means, with respect

7 to any participant or beneficiary under the

8 employee stock ownership plan—

9 ‘‘(I) the stock in the S corpora10 tion constituting employer securities

11 of such plan which is allocated to such

12 participant or beneficiary under the

13 plan, and

14 ‘‘(II) such participant’s or bene15 ficiary’s share of the stock in such

16 corporation which is held by such

17 trust but which is not allocated under

18 the plan to employees.

19 ‘‘(ii) INDIVIDUAL’S SHARE OF

20 UNALLOCATED STOCK.—For purposes of

21 clause (i)(II), an individual’s share of

22 unallocated S corporation stock held by the

23 trust is the amount of the unallocated

24 stock which would be allocated to such in25 dividual if the unallocated stock were allo-
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1 cated to individuals in the same propor2 tions as the most recent stock allocation

3 under the plan.

4 ‘‘(D) MEMBER OF FAMILY.—For purposes

5 of this paragraph, the term ‘member of the

6 family’ means, with respect to any individual—

7 ‘‘(i) the spouse of the individual,

8 ‘‘(ii) an ancestor or lineal descendant

9 of the individual or the individual’s spouse,

10 ‘‘(iii) a brother or sister of the indi11 vidual or the individual’s spouse and any

12 lineal descendant of the brother or sister,

13 and

14 ‘‘(iv) the spouse of any person de15 scribed in clause (ii) or (iii).

16 ‘‘(5) DEFINITIONS.—For purposes of this

17 subsection—

18 ‘‘(A) EMPLOYEE STOCK OWNERSHIP

19 PLAN.—The term ‘employee stock ownership

20 plan’ has the meaning given such term by sec21 tion 4975(e)(7).

22 ‘‘(B) EMPLOYER SECURITIES.—The term

23 ‘employer security’ has the meaning given such

24 term by section 409(l).
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1 ‘‘(6) REGULATIONS.—The Secretary shall pre2 scribe such regulations as may be necessary to carry

3 out the purposes of this subsection, including regula4 tions providing for the treatment of any stock op5 tion, restricted stock, stock appreciation right, phan6 tom stock unit, performance unit, or similar instru7 ment granted by an S corporation as stock or not

8 stock.’’

9 (b) EXCISE TAX.—

10 (1) IN GENERAL.—Section 4979A(b) (defining

11 prohibited allocation) is amended by striking ‘‘and’’

12 at the end of paragraph (1), by striking the period

13 at the end of paragraph (2) and inserting ‘‘, and’’,

14 and by adding at the end the following new para15 graph:

16 ‘‘(3) any allocation of employer securities which

17 violates the provisions of section 409(p).’’

18 (2) LIABILITY.—Section 4979A(c) (defining li19 ability for tax) is amended by adding at the end the

20 following new sentence: ‘‘In the case of a prohibited

21 allocation described in subsection (b)(3), such tax

22 shall be paid by the S corporation the stock in which

23 was allocated in violation of section 409(p).’’

24 (c) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to plan years beginning after

3 December 31, 2000.

4 (2) EXCEPTION FOR CERTAIN PLANS.—In the

5 case of any—

6 (A) employee stock ownership plan estab7 lished after July 14, 1999, or

8 (B) employee stock ownership plan estab9 lished on or before such date if employer securi10 ties held by the plan consist of stock in a cor11 poration with respect to which an election under

12 section 1362(a) of the Internal Revenue Code

13 of 1986 is not in effect on such date,

14 the amendments made by this section shall apply to

15 plan years ending after July 14, 1999.

16 SEC. 1318. MODIFICATION OF ANTI-ABUSE RULES RELATED

17 TO ASSUMPTION OF LIABILITY.

18 (a) IN GENERAL.—Section 357(b)(1) (relating to tax

19 avoidance purpose) is amended—

20 (1) by striking ‘‘the principal purpose’’ and in21 serting ‘‘a principal purpose’’, and

22 (2) by striking ‘‘on the exchange’’ in subpara23 graph (A).
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to assumptions of liability after

3 July 14, 1999.

4 SEC. 1319. ALLOCATION OF BASIS ON TRANSFERS OF IN5 TANGIBLES IN CERTAIN NONRECOGNITION

6 TRANSACTIONS.

7 (a) TRANSFERS TO CORPORATIONS.—Section 351

8 (relating to transfer to corporation controlled by trans9 feror) is amended by redesignating subsection (h) as sub10 section (i) and by inserting after subsection (g) the fol11 lowing new subsection:

12 ‘‘(h) TREATMENT OF TRANSFERS OF INTANGIBLE

13 PROPERTY.—

14 ‘‘(1) TRANSFERS OF LESS THAN ALL SUBSTAN15 TIAL RIGHTS.

16 ‘‘(A) IN GENERAL.—A transfer of an inter17 est in intangible property (as defined in section

18 936(h)(3)(B)) shall be treated under this sec19 tion as a transfer of property even if the trans20 fer is of less than all of the substantial rights

21 of the transferor in the property.

22 ‘‘(B) ALLOCATION OF BASIS.—In the case

23 of a transfer of less than all of the substantial

24 rights of the transferor in the intangible prop25 erty, the transferor’s basis immediately before
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•S 1429 PCS

1 the transfer shall be allocated among the rights

2 retained by the transferor and the rights trans3 ferred on the basis of their respective fair mar4 ket values.

5 ‘‘(2) NONRECOGNITION NOT TO APPLY TO IN6 TANGIBLE PROPERTY DEVELOPED FOR TRANS7 FEREE.—This section shall not apply to a transfer

8 of intangible property developed by the transferor or

9 any related person if such development was pursuant

10 to an arrangement with the transferee.’’

11 (b) TRANSFERS TO PARTNERSHIPS.—Subsection (d)

12 of section 721 is amended to read as follows:

13 ‘‘(d) TRANSFERS OF INTANGIBLE PROPERTY.—

14 ‘‘(1) IN GENERAL.—Rules similar to the rules

15 of section 351(h) shall apply for purposes of this

16 section.

17 ‘‘(2) TRANSFERS TO FOREIGN PARTNER18 SHIPS.—For regulatory authority to treat intangi19 bles transferred to a partnership as sold, see section

20 367(d)(3).’’

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to transfers on or after the date

23 of the enactment of this Act.
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1 SEC. 1320. CONTROLLED ENTITIES INELIGIBLE FOR REIT

2 STATUS.

3 (a) IN GENERAL.—Subsection (a) of section 856 (re4 lating to definition of real estate investment trust) is

5 amended by striking ‘‘and’’ at the end of paragraph (6),

6 by redesignating paragraph (7) as paragraph (8), and by

7 inserting after paragraph (6) the following new paragraph:

8 ‘‘(7) which is not a controlled entity (as defined

9 in subsection (l)); and’’.

10 (b) CONTROLLED ENTITY.—Section 856 is amended

11 by adding at the end the following new subsection:

12 ‘‘(l) CONTROLLED ENTITY.—

13 ‘‘(1) IN GENERAL.—For purposes of subsection

14 (a)(7), an entity is a controlled entity if, at any time

15 during the taxable year, one person (other than a

16 qualified entity)—

17 ‘‘(A) in the case of a corporation, owns

18 stock—

19 ‘‘(i) possessing at least 50 percent of

20 the total voting power of the stock of such

21 corporation, or

22 ‘‘(ii) having a value equal to at least

23 50 percent of the total value of the stock

24 of such corporation, or

25 ‘‘(B) in the case of a trust, owns beneficial

26 interests in the trust which would meet the re-
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•S 1429 PCS

1 quirements of subparagraph (A) if such inter2 ests were stock.

3 ‘‘(2) QUALIFIED ENTITY.—For purposes of

4 paragraph (1), the term ‘qualified entity’ means—

5 ‘‘(A) any real estate investment trust, and

6 ‘‘(B) any partnership in which one real es7 tate investment trust owns at least 50 percent

8 of the capital and profits interests in the part9 nership.

10 ‘‘(3) ATTRIBUTION RULES.—For purposes of

11 this paragraphs (1) and (2)—

12 ‘‘(A) IN GENERAL.—Rules similar to the

13 rules of subsections (d)(5) and (h)(3) shall

14 apply.

15 ‘‘(B) STAPLED ENTITIES.—A group of en16 tities which are stapled entities (as defined in

17 section 269B(c)(2)) shall be treated as 1 per18 son.

19 ‘‘(4) EXCEPTION FOR CERTAIN NEW REITS.—

20 ‘‘(A) IN GENERAL.—The term ‘controlled

21 entity’ shall not include an incubator REIT.

22 ‘‘(B) INCUBATOR REIT.—A corporation

23 shall be treated as an incubator REIT for any

24 taxable year during the eligibility period if it
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1 meets all the following requirements for such

2 year:

3 ‘‘(i) The corporation elects to be treat4 ed as an incubator REIT.

5 ‘‘(ii) The corporation has only voting

6 common stock outstanding.

7 ‘‘(iii) Not more than 50 percent of the

8 corporation’s real estate assets consist of

9 mortgages.

10 ‘‘(iv) From not later than the begin11 ning of the last half of the second taxable

12 year, at least 10 percent of the corpora13 tion’s capital is provided by lenders or eq14 uity investors who are unrelated to the cor15 poration’s largest shareholder.

16 ‘‘(v) The corporation annually in17 creases the value of its real estate assets

18 by at least 10 percent.

19 ‘‘(vi) The directors of the corporation

20 adopt a resolution setting forth an intent

21 to engage in a going public transaction.

22 No election may be made with respect to any

23 REIT if an election under this subsection was

24 in effect for any predecessor of such REIT.

25 ‘‘(C) ELIGIBILITY PERIOD.—
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1 ‘‘(i) IN GENERAL.—The eligibility pe2 riod (for which an incubator REIT election

3 can be made) begins with the REIT’s sec4 ond taxable year and ends at the close of

5 the REIT’s third taxable year, except that

6 the REIT may, subject to clauses (ii), (iii),

7 and (iv), elect to extend such period for an

8 additional 2 taxable years.

9 ‘‘(ii) GOING PUBLIC TRANSACTION.—

10 A REIT may not elect to extend the eligi11 bility period under clause (i) unless it en12 ters into an agreement with the Secretary

13 that if it does not engage in a going public

14 transaction by the end of the extended eli15 gibility period, it shall pay Federal income

16 taxes for the 2 years of the extended eligi17 bility period as if it had not made an incu18 bator REIT election and had ceased to

19 qualify as a REIT for those 2 taxable

20 years.

21 ‘‘(iii) RETURNS, INTEREST, AND NO22 TICE.—

23 ‘‘(I) RETURNS.—In the event the

24 corporation ceases to be treated as a

25 REIT by operation of clause (ii), the
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•S 1429 PCS

1 corporation shall file any appropriate

2 amended returns reflecting the change

3 in status within 3 months of the close

4 of the extended eligibility period.

5 ‘‘(II) INTEREST.—Interest shall

6 be payable on any tax imposed by rea7 son of clause (ii) for any taxable year

8 but, unless there was a finding under

9 subparagraph (D), no substantial un10 derpayment penalties shall be im11 posed.

12 ‘‘(III) NOTICE.—The corporation

13 shall, at the same time it files its re14 turns under subclause (I), notify its

15 shareholders and any other persons

16 whose tax position is, or may reason17 ably be expected to be, affected by the

18 change in status so they also may file

19 any appropriate amended returns to

20 conform their tax treatment consistent

21 with the corporation’s loss of REIT

22 status.

23 ‘‘(IV) REGULATIONS.—The Sec24 retary shall provide appropriate regu25 lations setting forth transferee liabil-
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1 ity and other provisions to ensure col2 lection of tax and the proper adminis3 tration of this provision.

4 ‘‘(iv) Clauses (ii) and (iii) shall not

5 apply if the corporation allows its incu6 bator REIT status to lapse at the end of

7 the initial 2-year eligibility period without

8 engaging in a going public transaction if

9 the corporation is not a controlled entity as

10 of the beginning of its fourth taxable year.

11 In such a case, the corporation’s directors

12 may still be liable for the penalties de13 scribed in subparagraph (D) during the eli14 gibility period.

15 ‘‘(D) SPECIAL PENALTIES.—If the Sec16 retary determines that an incubator REIT elec17 tion was filed for a principal purpose other than

18 as part of a reasonable plan to undertake a

19 going public transaction, an excise tax of

20 $20,000 shall be imposed on each of the cor21 poration’s directors for each taxable year for

22 which an election was in effect.

23 ‘‘(E) GOING PUBLIC TRANSACTION.—For

24 purposes of this paragraph, a going public

25 transaction means—
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1 ‘‘(i) a public offering of shares of the

2 stock of the incubator REIT;

3 ‘‘(ii) a transaction, or series of trans4 actions, that results in the stock of the in5 cubator REIT being regularly traded on an

6 established securities market and that re7 sults in at least 50 percent of such stock

8 being held by shareholders who are unre9 lated to persons who held such stock before

10 it began to be so regularly traded; or

11 ‘‘(iii) any transaction resulting in

12 ownership of the REIT by 200 or more

13 persons (excluding the largest single share14 holder) who in the aggregate own at least

15 50 percent of the stock of the REIT.

16 For the purposes of this subparagraph, the

17 rules of paragraph (3) shall apply in deter18 mining the ownership of stock.

19 ‘‘(F) DEFINITIONS.—The term ‘established

20 securities market’ shall have the meaning set

21 forth in the regulations under section 897.’’

22 (c) CONFORMING AMENDMENT.—Paragraph (2) of

23 section 856(h) is amended by striking ‘‘and (6)’’ each

24 place it appears and inserting ‘‘, (6), and (7)’’.

25 (d) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to taxable years ending after

3 July 14, 1999.

4 (2) EXCEPTION FOR EXISTING CONTROLLED

5 ENTITIES.—The amendments made by this section

6 shall not apply to any entity which is a controlled

7 entity (as defined in section 856(l) of the Internal

8 Revenue Code of 1986, as added by this section) as

9 of July 14, 1999, which is a real estate investment

10 trust for the taxable year which includes such date,

11 and which has significant business assets or activi12 ties as of such date.

13 SEC. 1321. DISTRIBUTIONS TO A CORPORATE PARTNER OF

14 STOCK IN ANOTHER CORPORATION.

15 (a) IN GENERAL.—Section 732 (relating to basis of

16 distributed property other than money) is amended by

17 adding at the end the following new subsection:

18 ‘‘(f) CORRESPONDING ADJUSTMENT TO BASIS OF AS19 SETS OF A DISTRIBUTED CORPORATION CONTROLLED BY

20 A CORPORATE PARTNER.—

21 ‘‘(1) IN GENERAL.—If—

22 ‘‘(A) a corporation (hereafter in this sub23 section referred to as the ‘corporate partner’)

24 receives a distribution from a partnership of

25 stock in another corporation (hereafter in this
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•S 1429 PCS

1 subsection referred to as the ‘distributed cor2 poration’),

3 ‘‘(B) the corporate partner has control of

4 the distributed corporation immediately after

5 the distribution or at any time thereafter, and

6 ‘‘(C) the partnership’s adjusted basis in

7 such stock immediately before the distribution

8 exceeded the corporate partner’s adjusted basis

9 in such stock immediately after the distribution,

10 then an amount equal to such excess shall be applied

11 to reduce (in accordance with subsection (c)) the

12 basis of property held by the distributed corporation

13 at such time (or, if the corporate partner does not

14 control the distributed corporation at such time, at

15 the time the corporate partner first has such con16 trol).

17 ‘‘(2) EXCEPTION FOR CERTAIN DISTRIBUTIONS

18 BEFORE CONTROL ACQUIRED.—Paragraph (1) shall

19 not apply to any distribution of stock in the distrib20 uted corporation if—

21 ‘‘(A) the corporate partner does not have

22 control of such corporation immediately after

23 such distribution, and

24 ‘‘(B) the corporate partner establishes to

25 the satisfaction of the Secretary that such dis-
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1 tribution was not part of a plan or arrangement

2 to acquire control of the distributed corpora3 tion.

4 ‘‘(3) LIMITATIONS ON BASIS REDUCTION.—

5 ‘‘(A) IN GENERAL.—The amount of the re6 duction under paragraph (1) shall not exceed

7 the amount by which the sum of the aggregate

8 adjusted bases of the property and the amount

9 of money of the distributed corporation exceeds

10 the corporate partner’s adjusted basis in the

11 stock of the distributed corporation.

12 ‘‘(B) REDUCTION NOT TO EXCEED AD13 JUSTED BASIS OF PROPERTY.—No reduction

14 under paragraph (1) in the basis of any prop15 erty shall exceed the adjusted basis of such

16 property (determined without regard to such re17 duction).

18 ‘‘(4) GAIN RECOGNITION WHERE REDUCTION

19 LIMITED.—If the amount of any reduction under

20 paragraph (1) (determined after the application of

21 paragraph (3)(A)) exceeds the aggregate adjusted

22 bases of the property of the distributed

23 corporation—

24 ‘‘(A) such excess shall be recognized by the

25 corporate partner as long-term capital gain, and
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•S 1429 PCS

1 ‘‘(B) the corporate partner’s adjusted basis

2 in the stock of the distributed corporation shall

3 be increased by such excess.

4 ‘‘(5) CONTROL.—For purposes of this sub5 section, the term ‘control’ means ownership of stock

6 meeting the requirements of section 1504(a)(2).

7 ‘‘(6) INDIRECT DISTRIBUTIONS.—For purposes

8 of paragraph (1), if a corporation acquires (other

9 than in a distribution from a partnership) stock the

10 basis of which is determined in whole or in part by

11 reference to subsection (a)(2) or (b), the corporation

12 shall be treated as receiving a distribution of such

13 stock from a partnership.

14 ‘‘(7) SPECIAL RULE FOR STOCK IN CON15 TROLLED CORPORATION.—If the property held by a

16 distributed corporation is stock in a corporation

17 which the distributed corporation controls, this sub18 section shall be applied to reduce the basis of the

19 property of such controlled corporation. This sub20 section shall be reapplied to any property of any

21 controlled corporation which is stock in a corpora22 tion which it controls.

23 ‘‘(8) REGULATIONS.—The Secretary shall pre24 scribe such regulations as may be necessary to carry

25 out the purposes of this subsection, including regula-
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1 tions to avoid double counting and to prevent the

2 abuse of such purposes.’’

3 (b) EFFECTIVE DATE.—The amendment made by

4 this section shall apply to distributions made after July

5 14, 1999.

6 TITLE XIV—TECHNICAL

7 CORRECTIONS

8 SEC. 1401. AMENDMENTS RELATED TO TAX AND TRADE RE9 LIEF EXTENSION ACT OF 1998.

10 (a) AMENDMENT RELATED TO SECTION 1004(b) OF

11 THE ACT.—Subsection (d) of section 6104 is amended by

12 adding at the end the following new paragraph:

13 ‘‘(6) APPLICATION TO NONEXEMPT CHARI14 TABLE TRUSTS AND NONEXEMPT PRIVATE FOUNDA15 TIONS.—The organizations referred to in paragraphs

16 (1) and (2) of section 6033(d) shall comply with the

17 requirements of this subsection relating to annual

18 returns filed under section 6033 in the same manner

19 as the organizations referred to in paragraph (1).’’

20 (b) AMENDMENT RELATED TO SECTION 4003 OF

21 THE ACT.—Subsection (b) of section 4003 of the Tax and

22 Trade Relief Extension Act of 1998 is amended by insert23 ing ‘‘(7)(A)(i)(II),’’ after ‘‘(5)(A)(ii)(I),’’.

24 (c) EFFECTIVE DATE.—The amendments made by

25 this section shall take effect as if included in the provisions
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•S 1429 PCS

1 of the Tax and Trade Relief Extension Act of 1998 to

2 which they relate.

3 SEC. 1402. AMENDMENTS RELATED TO INTERNAL REVENUE

4 SERVICE RESTRUCTURING AND REFORM ACT

5 OF 1998.

6 (a) AMENDMENT RELATED TO 1103 OF THE ACT.—

7 Paragraph (6) of section 6103(k) is amended—

8 (1) by inserting ‘‘and an officer or employee of

9 the Office of Treasury Inspector General for Tax

10 Administration’’ after ‘‘internal revenue officer or

11 employee’’, and

12 (2) by striking ‘‘INTERNAL REVENUE’’ in the

13 heading and inserting ‘‘CERTAIN’’.

14 (b) AMENDMENT RELATED TO SECTION 3509 OF

15 THE ACT.—Subparagraph (A) of section 6110(g)(5) is

16 amended by inserting ‘‘, any Chief Counsel advice,’’ after

17 ‘‘technical advice memorandum’’.

18 (c) EFFECTIVE DATE.—The amendments made by

19 this section shall take effect as if included in the provisions

20 of the Internal Revenue Service Restructuring and Reform

21 Act of 1998 to which they relate.

22 SEC. 1403. AMENDMENTS RELATED TO TAXPAYER RELIEF

23 ACT OF 1997.

24 (a) AMENDMENT RELATED TO SECTION 302 OF THE

25 ACT.—The last sentence of section 3405(e)(1)(B) is
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•S 1429 PCS

1 amended by inserting ‘‘(other than a Roth IRA)’’ after

2 ‘‘individual retirement plan’’.

3 (b) AMENDMENTS RELATED TO SECTION 1072 OF

4 THE ACT.—

5 (1) Clause (ii) of section 415(c)(3)(D) and sub6 paragraph (B) of section 403(b)(3) are each amend7 ed by striking ‘‘section 125 or’’ and inserting ‘‘sec8 tion 125, 132(f)(4), or’’.

9 (2) Paragraph (2) of section 414(s) is amended

10 by striking ‘‘section 125, 402(e)(3)’’ and inserting

11 ‘‘section 125, 132(f)(4), 402(e)(3)’’.

12 (c) AMENDMENT RELATED TO SECTION 1454 OF

13 THE ACT.—Subsection (a) of section 7436 is amended by

14 inserting before the period at the end of the first sentence

15 ‘‘and the proper amount of employment tax under such

16 determination’’.

17 (d) EFFECTIVE DATE.—The amendments made by

18 this section shall take effect as if included in the provisions

19 of the Taxpayer Relief of 1997 to which they relate.

20 SEC. 1404. OTHER TECHNICAL CORRECTIONS.

21 (a) AFFILIATED CORPORATIONS IN CONTEXT OF

22 WORTHLESS SECURITIES.—

23 (1) Subparagraph (A) of section 165(g)(3) is

24 amended to read as follows:
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•S 1429 PCS

1 ‘‘(A) the taxpayer owns directly stock in

2 such corporation meeting the requirements of

3 section 1504(a)(2), and’’.

4 (2) Paragraph (3) of section 165(g) is amended

5 by striking the last sentence.

6 (3) The amendments made by this subsection

7 shall apply to taxable years beginning after Decem8 ber 31, 1984.

9 (b) REFERENCE TO CERTAIN STATE PLANS.—

10 (1) Subparagraph (B) of section 51(d)(2) is

11 amended—

12 (A) by striking ‘‘plan approved’’ and in13 serting ‘‘program funded’’, and

14 (B) by striking ‘‘(relating to assistance for

15 needy families with minor children)’’.

16 (2) The amendment made by paragraph (1)

17 shall take effect as if included in the amendments

18 made by section 1201 of the Small Business Job

19 Protection Act of 1996.

20 (c) AMOUNT OF IRA CONTRIBUTION OF LESSER

21 EARNING SPOUSE.—

22 (1) Clause (ii) of section 219(c)(1)(B) is

23 amended by striking ‘‘and’’ at the end of subclause

24 (I), by redesignating subclause (II) as subclause
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1 (III), and by inserting after subclause (I) the fol2 lowing new subclause:

3 ‘‘(II) the amount of any des4 ignated nondeductible contribution (as

5 defined in section 408(o)) on behalf of

6 such spouse for such taxable year,

7 and’’.

8 (2) The amendment made by paragraph (1)

9 shall take effect as if included in section 1427 of the

10 Small Business Job Protection Act of 1996.

11 (d) MODIFIED ENDOWMENT CONTRACTS.—

12 (1) Paragraph (2) of section 7702A(a) is

13 amended by inserting ‘‘or this paragraph’’ before the

14 period.

15 (2) Clause (ii) of section 7702A(c)(3)(A) is

16 amended by striking ‘‘under the contract’’ and in17 serting ‘‘under the old contract’’.

18 (3) The amendments made by this subsection

19 shall take effect as if included in the amendments

20 made by section 5012 of the Technical and Miscella21 neous Revenue Act of 1988.

22 (e) LUMP-SUM DISTRIBUTIONS.—

23 (1) Clause (ii) of section 401(k)(10)(B) is

24 amended by adding at the end the following new
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1 sentence: ‘‘Such term includes a distribution of an

2 annuity contract from—

3 ‘‘(I) a trust which forms a part

4 of a plan described in section 401(a)

5 and which is exempt from tax under

6 section 501(a), or

7 ‘‘(II) an annuity plan described

8 in section 403(a).’’

9 (2) The amendment made by paragraph (1)

10 shall take effect as if included in section 1401 of the

11 Small Business Job Protection Act of 1996.

12 (f) TENTATIVE CARRYBACK ADJUSTMENTS OF

13 LOSSES FROM SECTION 1256 CONTRACTS.—

14 (1) Subsection (a) of section 6411 is amended

15 by striking ‘‘section 1212(a)(1)’’ and inserting ‘‘sub16 section (a)(1) or (c) of section 1212’’.

17 (2) The amendment made by paragraph (1)

18 shall take effect as if included in the amendments

19 made by section 504 of the Economic Recovery Tax

20 Act of 1981.

21 SEC. 1405. CLERICAL CHANGES.

22 (1) Subsection (f) of section 67 is amended by

23 striking ‘‘the last sentence’’ and inserting ‘‘the sec24 ond sentence’’.
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1 (2) The heading for paragraph (5) of section

2 408(d) is amended to read as follows:

3 ‘‘(5) DISTRIBUTIONS OF EXCESS CONTRIBU4 TIONS AFTER DUE DATE FOR TAXABLE YEAR AND

5 CERTAIN EXCESS ROLLOVER CONTRIBUTIONS.—’’.

6 (3) The heading for subparagraph (B) of sec7 tion 529(e)(3) is amended by striking ‘‘UNDER

8 GUARANTEED PLANS’’.

9 (4)(A) Subsection (e) of section 678 is amended

10 by striking ‘‘an electing small business corporation’’

11 and inserting ‘‘an S corporation’’.

12 (B) Clause (v) of section 6103(e)(1)(D) is

13 amended to read as follows:

14 ‘‘(v) if the corporation was an S cor15 poration, any person who was a share16 holder during any part of the period cov17 ered by such return during which an elec18 tion under section 1362(a) was in effect,

19 or’’.

20 (5) Subparagraph (B) of section 995(b)(3) is

21 amended by striking ‘‘the Military Security Act of

22 1954 (22 U.S.C. 1934)’’ and inserting ‘‘section 38

23 of the International Security Assistance and Arms

24 Export Control Act of 1976 (22 U.S.C. 2778)’’.
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1 (6) Subparagraph (B) of section 4946(c)(3) is

2 amended by striking ‘‘the lowest rate of compensa3 tion prescribed for GS–16 of the General Schedule

4 under section 5332’’ and inserting ‘‘the lowest rate

5 of basic pay for the Senior Executive Service under

6 section 5382’’.

7 TITLE XV—COMPLIANCE WITH

8 CONGRESSIONAL BUDGET ACT

9 SEC. 1501. SUNSET OF PROVISIONS OF ACT.

10 All provisions of, and amendments made by, this Act

11 which are in effect on September 30, 2009, shall cease

12 to apply as of the close of September 30, 2009.

13 SEC. 1502. RESTORATION OF PROVISIONS OF ACT.

14 All provisions of, and amendments made by, this Act

15 which were terminated under section 1501 shall begin to

16 apply again as of October 1, 2009, as provided in each

17 such provision or amendment.